Home / Companies / People /  Indian firms need to scale digital transformation: BCG

BENGALURU : Vaishali Rastogi, global leader at Boston Consulting Group’s (BCG’s) technology, media, and telecommunications (TMT) practice, and Rajiv Gupta, managing director and senior partner at BCG  (right), who leads the TMT practice in India, spoke in an interview about how digital technologies are transforming industries worldwide even as more needs to be done to bridge the digital divide, and why more women should be in tech leadership positions. Edited excerpts: 

 

Do you see companies making good progress with their digital transformation roadmaps? What are they doing right, and what can they do better?

Rastogi: For the last 3-5 years, digital transformations have been on the agenda of companies. Covid-19 was a super-accelerator. Obviously, it was a traumatic period but there was a silver lining in the sense that covid accelerated digital transformation. Look at digital payments, digital health, digital education, and at governments—they really are using digital, which is a huge leap forward. As a result, companies have had no choice but to respond faster, especially when consumer behaviour changes so dramatically.

Asia is, to my mind, well suited to it (digital transformation). We don’t have legacy. We are mobile first, both in India and also in many parts of Asia. So, we can actually leapfrog. That is great, because it can be also an innovator that companies can take back (products and services) to other markets, rather than being the other way around. But while digital transformation has become a huge priority, we don’t see digital at scale across industries—they (compnies) are doing pilots, which is easy.

Gupta: In India, everyone knows that digital transformation is to be done and most companies are in generation two of their transformation journeys. However, there is a clear digital divide (between digital leaders and laggards). Obviously, tech companies in India are implementing at a far more accelerated pace than, say, many manufacturing companies, other than some really large manufacturing firms. But even as everybody gets digital transformation, they are less successful in getting on with it on a large scale. There’s a nice quote by one of the large tech CEOs who said that the ‘pilot (testing of a project) is going to be the bane of this industry’. 

What should companies do to go beyond pilots, and scale?

Rastogi: A study we did recently revealed that only 30% of digital transformation projects succeed. We looked at the main factors driving it. Number one, you really need to figure out the business case—what is the problem you are trying to solve, and what value will you get from it? Second is, how do you do this in an accelerated way, at scale? Third involves forming the right team talent unit. And last is senior management commitment— it really needs to be something which is at the core of the business, not a side activity or a hobby. I find Indian traditional companies struggling beyond numbers to take a leap of faith. 

Are you seeing companies reduce their IT spends given the fear of a looming recession? Will it impact ongoing and new digital transformation initiatives?

Rastogi: We did an IT buyer survey two months ago, and there were two areas that the respondents put down as priorities. The first is that they will continue to scale infrastructure and security spending. The second is that anything to do with digital transformation will remain a top priority—think about automation and so on. You will also notice that IT services companies have not lowered their forecasts, and neither has Nasscom lowered its industry forecast. However, we are seeing spends moving from capex (capital expenditure) to opex (operating expenditure). For instance, let’s say that if one were to spend about $200 million on a project, the capex part is the implementation while the opex part is to run services and outsourcing. Also, we are seeing almost 15-20% of software services being sold as a service. It will reach an inflection point, and then shoot through the roof.

But do you see Indian IT services moving up the value chain, given that a substantial portion of their revenue still comes from application, development and maintenance (ADM)?

Gupta: Indian IT services companies have retained their market share and not lost space. Now, what is really digital versus what is legacy ADM is actually very difficult to decipher unless you’re an internal auditor. But if India controls 55% of the global IT spend, and has a labour workforce that’s larger than that, proportionately, then India should not be following global trends—it should be leading from the front. It should be dictating what are the future technologies and should be proactively creating those centres of excellence—whether they be for mobility, cloud, AI, blockchain or for that matter, the metaverse or web3. Indian IT firms, however, are still very, very reactive. This is the time to seize advantage and move up the value chain. Also, we significantly lack a product mindset. 

How do you feel being a woman tech leader in a field dominated by men?

Rastogi: I’ve been at BCG for 25 years, this is my 26th. I started in Mumbai, and I was the only woman consultant on our team. Thankfully, this has changed now. We are fortunate to be in a different era now. I think it requires both sides to play a role (in promoting the cause of women in tech)—the C-Suite at companies and women too. Hybrid working has allowed a lot of people including women to continue working for companies. I would love to see more women in leadership roles in technology. 

What’s your perspective on tech startups that are burning huge amounts of cash and have seen their insane valuations take a beating?

Rastogi: Technology is a very powerful driver of innovation and disruption. Now, there has been a hiccup called tech valuations, which sometimes distracts from this overall message. So yes, tech valuations have fallen, more for incumbent tech players. Now, some of that was just potentially, you know, correction in the market. But despite the dip, if you look at value creation in global equities, $9 trillion of the $11 trillion (market cap) is driven by tech in the last five years--that’s a massive number. And that’s as of end September, even after accounting for all the corrections we’ve seen in the market. I see disruption happening in two parts. One is what I call technology as a disruption for other industries -- taking real customer pain points, and a technology-first approach to solve that. And then we have those companies with emerging technologies. But (despite the dip in funding) I think early stage investments will continue, especially for companies that have reasonable fundamental economics. I also see India as a huge hotbed of innovation along with China and the Southeast Asia.

How should senior executive and business leaders leverage disruptive technologies like data analytics, AI, blockchain, metaverse and Web3.0 to name a few?

We touched on digital, which includes data analytics anyway. That’s kind of far more mature than some of the other technologies you mentioned. But if I just take the metaverse as one example, because it is a much-searched term on the internet, we still have to get to what I call big use cases and big value cases. I think we still have to reach an inflection point, whether it’s on the hardware, software, or even the kind of content that is available. Now, it’s anybody’s guess whether this happens in the next two years or the next five years, but there will be an inflection point because there is so much funding for this.

My advice to CEOs would be that at least pick a few areas of experimentation. When you see retail, for example, a lot of the luxury players are already selling NFTs (non-fungible tokens -- that’s real business with real money. You can take it further to fitting trial room, etc. So, there are real use cases here. Hence, figuring out few areas of experimentation is important because if you start only when you hit the inflection point, it will be very late.

We always overestimate the short term, and we underestimate the long term. And I think that’s exactly what’s happening in the metaverse. So, depending on which person and which sector they are in, and in which function, there are technologies you may have to invest in. You pick a few bets. And for some, you start being an early adopter, whereas with the rest, you wait and watch because it is impossible to chase all of these areas.

Other than the business digital divide, a third of the world’s population suffers from lack of meaningful access to technologies. What should governments, companies and institutions need to do to address this issue?

Rastogi: It is a topic that I’m passionate about. About three billion of our world’s population is suffering from the digital divide. And I’m not talking about infrastructure since about 95% of the world is living next to a network. It’s what I call accessibility, meaning can they actually use it in a way that is that makes sense, and at the right speeds, and so on? Can they actually afford it? Do they know how to use it in the first place? There is no one answer to this problem. I looked at what India has been doing over the years. And I am deeply impressed because India has created that base level infrastructure on which, you can drive the next set of things. But the problem is making it accessible to all people.

Gupta: Given the GDP per capita of India, actually, the inclusiveness index of India has been higher on tech--Covid had a lot to do with it. So, from an India standpoint, I’m a bit more enthused and bit more optimistic about the path that that has been traversed, especially in the last two to three years. I’m very hopeful that India will provide the impetus to work on the rest of the digital inclusion elements.

How often do you visit India?

Rastogi: I left India about two decades ago. But I do have family here. And now obviously given I run our global business for TMT, I do come here for that, but then there was COVID that hit the world. But I do come in at least a couple of times, two or three times a year. I took this (global) role over three years ago. It’s been fun, because I think I’m the first Indian practice area lead globally and of Indian origin. It gives me a great vantage point.

ABOUT THE AUTHOR

Leslie D'Monte

Leslie D'Monte has been a journalist for almost three decades. He specialises in technology and science writing, having worked with leading media groups--both as a reporter and an editor. He is passionate about digital transformation and deep-tech topics including artificial intelligence (AI), big data analytics, the Internet of Things (IoT), blockchain, crypto, metaverses, quantum computing, genetics, fintech, electric vehicles, solar power and autonomous vehicles. Leslie is a Massachusetts Institute of Technology (MIT) Knight Science Journalism Fellow (2010-11). In his other avatar, he curates tech events and moderates panels.
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