Fred Giron at Forrester has a provocatively titled post out Is This The End Of India’s IT Services Success Story?
Thankfully it is not the end. Once you get past the title, Giron’s post itself does not point to a doomsday. And I doubt that his eventual research note on this subject will either. Mostly because it just isn’t true.
Giron describes the impact of IP based Solutions on the industry as ‘transformational’ and even ‘disruptive’. I think we can safely say that it will not disrupt the industry. At least not in the new-business-model-hollows-out-old-business-model sense that Clayton Christensen used the word.
I don’t even think that it will be very transformational.
The composition of revenue in the IT Services industry changes slowly. While the frontier along which value is created and companies compete, shifts quickly, the bulk of the revenue will still come from a set of slowly commoditizing services. IP-based Solutions will form that frontier but there will be other services there as well. And while the action will be thick on the frontier, requiring new skills and capabilities, back in the heartland, it will be business as usual.
What that means is that even though there may be great value created by IP based Solutions it will take a long, long time before it has any effect, if at all, on the growth rates or employment generation by the industry.
In our book we take a pretty close look at the challenges faced by the Indian IT Services industry from commoditizing services and rising client expectations and do some prognostication of our own.
In a chapter called “The Quest for Higher Bill Rates” we closely examine the different ways a Solution can create value for the clients and the service provider. Also, what does it take for a service provider to be successful at selling Solutions.
In another chapter “New New Thing” we take a look at the trends in Enterprise IT – Cloud, Big Data among others – and their impact on the industry, both negative and positive.
The central problem to solve for the industry is how to stave off commoditization. The solution to this problem, in one word, is Innovation. Sometimes innovation will come in the form of IP-based Solutions. Sometimes it will be in the form of a new Service, say marketing services for pharmaceutical companies. And sometimes it may be a new way to serve a certain market (Japan, anyone?)
His point about the skill gap in Indian IT is spot on though, and in some ways is fueling the propensity of mature customers to pick product solutions over custom-built. It is difficult too, to expect that Indian IT companies will generate enough commercial-grade innovation in services to fend off IP-backed solutions. Hope now lies in the BRICS.
Good post, Basab. Overall, I agree with you. Things are not going to change in the blink of an eye. Also, I’ve read in more than one place that the entire software services industry is many times larger than the entire software products industry (speaking of both, worldwide). Software startup / software product fans can be blinded to this, just like anyone else, due to hype in popular media. Having said that, I think the Indian software service providers should really make more attempts to get into products and IP, due to the higher leverage (over the long term) for the efforts put in. Spoken as a guy who has worked on both sides.
Over the last decade the Indian IT Industry has undergone a transformation that is barely visible to outsiders. IT is no longer limited to solving ‘IT Problems’ but the scope has shifted to solving ‘Business Problems’. In several corporates, now a days you get recognized not because of the IT skill that you bring to the table but because of the business domain knowledge that one has acquired over a period. And these core competencies in client business domain is going to drive the rest of the IT business. Alas too many Indian IT companies don’t realise what valuable skills their existing employees have and still continue to segregate based on technology areas. Even though its not the end of Indian IT services as is perceived by clients today..it definitely calls for an internal relook at the ‘services’ that companies can offer to their customers.
Services are built on a tight leash, and involves a customer who likes to drive the vendor. The customer is used to driving and the vendor expects that direction. Now reversing this is going against the grain and does not suit minds already set. The best way to build products is to Set up a Lab near site and buy feedback albeit not from prospective buyers but prospective end users.