Bangalore: When Vineet Nayar, 52, took over as chief executive at HCL Technologies Ltd in 2007, the fledgling Noida-based firm had been written off by larger Indian software services peers and was often criticized for being obsessed with growth over margins. By the time he handed over the reins to Anant Gupta in January 2013, HCL Technologies revenue nearly trebled to over $4 billion and outpaced the growth rates of Infosys Ltd and Wipro Ltd.

Nayar, widely credited for this turnaround, now spends most of his time looking after the affairs of Sampark Foundation, a charitable trust he set up in 2004, advising organizations on their digital transformation strategy, and pursuing his other passion—writing. In an interview on Friday, he spoke about the opportunities for Indian information technology (IT) firms, the mistakes the sector is making, and his work at the foundation. Edited excerpts:

As someone who has moved away from the IT industry after being the driving force behind HCL Tech’s turnaround, what are your thoughts on what is happening in the Indian IT industry right now?

The Indian IT sector is at a very interesting junction. Any industry goes through three phases in order to be relevant to its customers. First, it promises to be very efficient... Then the Indian IT sector gave the offer of making the customer more effective. That is where we started application consolidation, infrastructure management, total IT outsourcing, etc. And that was not just about cutting down cost, but also about cutting down cycle times. However, the customer has moved on. You’ve seen the movie Inception. The existence of corporations now are on multiple levels. There is an existence in the physical world, but there is a massive existence in the digital world and that is only increasing with each passing day.

The ability for us to service that transformative need of the customer is going to be the next generation of growth... Nothing is going to happen with the current services portfolio; they will keep growing only because there are enough inefficient people and enough ineffective people. But if you really want to continue to be relevant for the customer... then I would struggle to say that Indian IT really has not figured out what is their answer to the customer wanting to transform themselves into a digital corporation. So therefore, it’s a threat and an opportunity.

Are companies like Tata Consultancy Services, Infosys, Wipro, etc., doing enough to make that transition and ensure their relevance 5-10 years down the line?

I think the word which you used, of ‘relevance’, how do we understand that? Unfortunately, we measure success in terms of bigness, we don’t measure success in terms of relevance. Market has started measuring relevance, therefore the Twitter, Facebook, WhatsApp valuations are indicating that in the digital world, the valuations will be based on relevance, not on your size, not on your margins. And I think we’re fast losing the relevance part and therefore there is a reboot that is required.

So, what are some of the mistakes that Indian IT is making?

I think there’s an organizational structure issue. The way you construct an organizational structure for efficiency is the old, traditional utilization metrics. We’re still trapped in the utilization metrics, the ratio of onsite and offshore, H1B visas, etc. The moment you move to effectiveness you have to create divisions. The moment you move to transformative, then you need an organizational structure which addresses that problem, independent of the rest of your business. I think the first problem Indian IT is facing is that they’re unable to create something outside, detached from what their current offerings are.

As Clayton Christensen (Harvard Business School professor and an authority on disruptive innovation) has said, everybody seems to be trapped in being incrementally innovative. If you really want disruptive innovation, which is what the customer is looking for, you yourself have to create a division which is detached from the rest of your business, and that has to be headquartered with other technology companies in the (San Francisco) Bay Area.

There seems to be a sense of aversion among large Indian IT firms towards taking risks...

I still remember, when we (at HCL Technologies) first launched total IT outsourcing in 2005, and we won (contracts from) Dixons and Reader’s Digest, I was talking to an IBM-er. And the IBM-er said to me, ‘We have so many contracts and so much large transactions happening that these small contracts that you’re taking away at the bottom of the pyramid, don’t really matter.’ Today for companies like IBM (International Business Machines Corp.) and HP (Hewlett-Packard Co.), (companies like) HCL are the biggest competition. So this person who didn’t matter is now your biggest threat.

So the question in my mind is, is Indian IT in the same IBM mindset? The size of the new is so small, the size of the old is so large. The mindset is, clearly I can grow for the next 5 years without taking any risks. Does that mindset prevent us from taking and assuming the risks which we took when we launched BPO (business process outsourcing), when we launched total IT outsourcing, when we launched remote infrastructure management? We took a risk in launching those services because India knew nothing about them. So, are we happy with our current growth rates, and, therefore, ignoring the smallness of the new, and therefore—other than the vocabulary in our conversations—ignoring the fact that we need to take a risk to continue to be relevant to our customers? That would be my question.

But even if you take IBM as an example, they have undertaken large-scale transformations through their history. There’s a perception among top customers now that Indian IT firms don’t seem to be innovating enough.

... Today we are happy where we are as an industry. That quotient of unhappiness which drives aspiration, drives appetite, relevance and risk-taking abilities has gone down. And unfortunately, smaller companies are also not coming up. So even if the larger companies lack the ability to take risks, lack the appetite for re-inventing themselves, at least smaller companies should come up and disrupt. That is also not happening, which is amazing to me.

What do companies need to do?

I believe in perpetuity and disruption, I believe in high-energy companies. I believe companies should always be aggressive and have hunger and appetite. If you are standing on a melting iceberg, you will sink and our industry is a melting iceberg. My worry is on relevance. As you start losing relevance, the customers start excluding you from more and more. What we did to IBM and Accenture, somebody else will do to us.

Let’s talk about the work you’re doing at your foundation. At Sampark, you’re doing a lot of things starting from improving per capita income to improving the quality of teaching. What are some of the other problems that you’re trying to solve?

We’re devoting a lot of time solving the most important problem, rather than solving all the problems. What is the most important problem, how can we bring disruptive innovation to create larger impact? That’s what we’re doing with Sampark.

Improving the quality of teaching and education is a big focus area for Sampark. How do you view the state of education in India? What needs to change?

This is not the time for the country to have those conversations because we’re so backward on education and there are so many things to be fixed. We need to fix a few policies and, therefore, I invested in Brookings India, where I’m a founding member. We’re doing policy research on education, which will drive what policies should come in and drive improvement in quality and effectiveness of education... What I want is inclusive education to come ground-up. At the village level, we need more innovation. We need more corporate people who think innovation. I don’t want to talk about what ails education because that won’t serve any purpose.

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