How IT services industry can spring back to life

Five change drivers that will shape its growth over the next decade

Updated: Apr 10, 2015 08:18:07 AM UTC
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The impressive run of IT services industry over the last 20 years is undoubtedly losing steam with rapid changes in customer expectations and technology taking place today. Client expectations have moved beyond offshore outsourcing’s key levers of cheaper, better, faster. And success will need more than mere incremental changes in the existing IT services model.

Businesses will need to make fundamental changes in their business model to make them dynamic, modern and fit for the future. Here are five changes that I believe IT firms need to consider:

1. More full-time equivalents (FTEs) vs more productivity It’s easy to understand that 10 FTEs with expertise score of 5 (out of 10) would produce less output compared to 5 FTEs with a score of 10. Obviously, more FTEs mean more dependencies and communication breakdowns, the perils of which could impact productivity many times over. Cycle times and time-to-market is also higher. A good example is startups where few experts produce significant output compared to large project teams. Today, there is a dire need to boost the expertise level in domain and technology in large firms. But this would mean a significant investment in training, automation tools and a culture shift which rewards expertise rather than management of large teams.

2. Sequential vs iterative development process
Time is money–no one wants to wait for 12 months to see the outcome of a project, especially given that the business environment and customers are rapidly changing. Outcomes are expected every few months, if not weeks. Requirements and design need to be adjusted periodically and feedback from market and technology incorporated in each iteration. Iterative processes, in such situations, provide speed and flexibility while bringing in accountability on both the technology and business side. It is more collaborative and less risky especially when dealing with information excess and hyper-fast and competitive environments. Companies need to proactively take a lead to evolve iterative software development processes, collaboration platforms and tools rather than holding on to traditional sequential or waterfall method.

3. Services vs products
In a hyper-competitive market with several small players challenging established business models using concepts such as agile and lean, open source and collaboration platforms, the offshore advantage may soon fade away. Exit barriers for customers are dropping every day. To toughen the exit barriers, a part of the earnings must come from product-based revenue. Products, when done right can form a large predictable revenue stream with high exit barriers. But the product model differs from the service model in terms of talent supply chain, investment cycle, risk, and quarter-on-quarter growth perspective. I believe product will be one of the most debated topics in board rooms of IT services companies in the future.

4. Management by approvals vs management by empowerment
Growth and favourable market conditions usually bring in management by approvals. Departments merely add another step to ensure external or internal compliance. Obviously, this means unproductive time for leadership and management. It slows down the engine drastically, frustrates employees, customers and both, at times. It’s more difficult when company policies aren’t changed with the changing environment. Deep-rooted and difficult-to-change systems morph into barriers for growth and innovation. Checks and balances established prove to be insufficient and companies that have grown too big too rapidly often need to strike a balance between approvals and empowerment.

5. Internal vs external innovation
Necessity is the mother of invention. High growth and substantial funds usually lead to complacency and the drive to achieve breakthrough innovation is missing. Excess reliance on internal innovation and R&D labs may mean missing out on some cool innovations by small players. Often, smaller players, while being passionate and highly productive, may not be able to visualise the commercial scalability of their ideas. Therefore, combining the strength of IT services companies with large customer bases and access to market with scalable new ideas from small players can be a win-win proposition.

Summing up, the brewing cauldron of changing customer expectations and technology is signalling for the IT services industry to transform again as in the 1990s when the industry worked with the forces of change to grow to its present size. The next 10 years will be transition years for IT services companies and the ones successful would have savoured these five fundamental shifts.

Is your business model ready for the future?

- By Rishi Kumar Jain, COO, Infosys McCamish

The thoughts and opinions shared here are of the author.

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