In search of the next big thing in the IT business

In search of the next big thing in the IT business

If there is one thing that the results of Infosys Technologies Ltd and Tata Consultancy Services Ltd show, it is that there is still not much clarity on the next big thing in the Indian IT services business in terms of business models. That should worry companies in a business that has evolved considerably in the past two and half decades.

For much of the 1980s and even some part of the 1990s, IT services was synonymous with body-shopping. The benefit offered by companies in the business to their customers, most of whom were in the US, was easy staffing at low cost. The first big revolution in the way the business was done came sometime in the mid-1990s when Indian companies started talking about the global delivery model, where they could service customers without having to ship people (or at least too many people) to faraway destinations. The second big revolution followed almost immediately—the realization that this kind of offshoring, as people began to call it, could be done not just with IT applications but also with other processes. The result was the birth of the business process outsourcing, or back-office services, industry. Since then, alas, there hasn’t been much happening in the business by way of radical changes though, I’m sure, the companies themselves would like to look at things differently.

This hasn’t been for want of trying.

For some time, companies flirted with consulting and claimed that clients would pay them on the basis of results. Several Indian IT services firms have consulting arms but these aren’t very significant in terms of the revenue they contribute.

A few companies believed something called platforms was the next big revolution in business model. This essentially meant acquiring the capability to offer a certain line of service, building a process around it, and then selling the service to multiple clients. This too hasn’t turned out to be what it promised to be.

This could explain why all reporting and analysis of Indian IT services firms continues to talk of the same things: headcount, hiring patterns, billing rates, attrition, split between on-site and offshore business, and costs.

I decided to do a bit of reporting for Acute Angle and called up three reasonably senior executives in three Indian IT services firms.

The first insisted that consulting would be the next big thing and that everyone was being hasty in writing it off.

The second claimed that the whole platforms thing had been misunderstood and that the model still rocked. He also referred vaguely to something called the non-linear growth model but declined to give details.

Maybe his company will surprise me soon.

The third, whom I know best, said he had no idea at all. If that’s indeed the case then the numbers-heavy and short-term way in which analysts look at IT companies may well be the best approach to understand their business.

Interestingly, Indian IT’s mid-life crisis, if it can be called that (the better companies continue to do well and remain profitable) comes at a time when the world is looking for a new driver to stimulate the economy.

For much of the 1990s and 2000s, this was simply the productivity gains that companies achieved by investing in information technology (some of these investments found their way to India, too, to IT services firms here). The popular consensus now is that the era of productivity gains (or at the least, easy and generous productivity gains) is over. Maybe when there is some clarity on the identity of this factor X, we will know what the next big thing for Indian IT is.

Until then, constant reader, your guess is as good as anyone else’s.

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