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The information technology (IT) industry has been India’s dream business, growing from virtually nothing 20 years ago to $100 billion today, 70% of which is exports to most developed markets. It has directly created three million well-paying jobs, contributes to 8% of India’s gross domestic product, and the leading IT firms are recognized as some of the best managed companies globally.

Yet, today Indian IT is perceived to be in the doldrums. The current slow growth, declining margins and business uncertainty are seen to be structural and not cyclical, and some commentators see Indian IT well past its prime.

Is this a fair characterization of the Indian IT industry?

Let us step back and take a longer-term perspective. In early 2000, right after the dotcom bust, in the first wave of outsourcing and offshoring, there was a race between Indian IT companies to gain size, prominence, global reach and sophistication (mostly at the front end), and for their Western competitors to either debunk offshore or to build capability and scale in global delivery.

A dozen years later, we can see that while Western IT leaders (International Business Machines Corp., Accenture Plc, Capgemini SA) have mastered global delivery, leading Indian IT firms have gained scale and prominence, but haven’t yet built enough sophistication in client management, acquired deep domain knowledge, and solidified reputation for delivery of complex business-centric IT projects (see chart).

There is a lot of discussion about delivering higher value-added services such as consulting and business-critical systems integration work to clients as a way to find new sources of revenue and play outside the commoditized outsourcing services space. While most big Indian IT firms have made impressive progress over the past decade to take on such work for clients, the contribution of such services is not yet substantial.

Is that so terrible or disappointing? Disappointing, yes. Terrible, no. And it is definitely not a fight to give up on. There is an unanswered question though about focus on this strategic journey during the current slowdown.

In the current market conditions, Indian IT has continued to focus its energies on the familiar businesses of application, infrastructure and business process outsourcing. Incremental demand for such services is not growing fast enough to satisfy the appetite of all outsourcers. Consequently, there is a fratricidal war in progress among various Indian IT companies over a slow-growing pool of traditional outsourcing deals. Disproportionate management attention and energy are getting devoted to winning relatively commoditized business at ultra-competitive rates and sub-par margins.

Indian IT firms have shown a lot of excitement regarding new technologies such as cloud computing, SAAS (software as a service), mobility and analytics. However, most of their projects in these areas have tended to be small ticket (less than $10 million) in size and scope because of lower IT customization work. On the other hand, a leading global firm announced with great fanfare in a recent earnings call a SAAS (Salesforce.com) deal upwards of $200 million for a US-based insurance company. The big difference is because what that firm has promised this insurance company is a complete transformation of its operating model across all product groups and locations, which will probably involve in addition to just IT work a big dollop of management and business process consulting.

It will take single-minded management attention, and much investment in building capability and reputation before an Indian IT services company can pull off a deal like the one above.

The second big worry is that Indian IT leaders have lost control of the narrative. In the early days, it was right to talk about rapid revenue growth, scale of operations and the increasing number of deals won. However, as the industry has matured and the rate of growth has inevitably slowed, there has been no alternative theme that has emerged to keep up the excitement and pride. As a result, Indian IT leadership is stuck with a story and a theme that is not only growing stale with repetition, but is also uninspiring given the slowing growth rate.

Indian IT urgently needs a new theme and a new narrative to recapture the passion that made it great.

Girish Paranjpe is a former joint chief executive officer of Wipro Ltd.

This is the first in a two-part analysis. Next: Beyond outsourcing.

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