Friday, December 04, 2009


Indian IT Sector - Strategic missteps

The Indian IT Sevices industry has made super-normal profits over the last few years. Howeve the fat profits that the IT organisations have made based largely on arbitrage, these have become notoriously risk-averse. They have not really invested in creating effective front-ends in their larger markets which say an organisation like Cognizant has done reaping the rewards now. The arbitrage model itself puts pressure to continue to send people from India (even in the front-end S&M functions) . Now I do not want to take away anything from the Indian professionals - they have done a remarkable job but they really cannot be expected to front-end with a Anglo Saxon customer base. Eventually selling has to be local. That is the lessons even American multinationals leaned when say they were expanding in countires outside their home country. For example IBM Japan is run by japanese and Indian manages sell sugared cola to Indians. Consequently the customer fails to bond with them and continues to percieve them as suppliers of cheap bodies. Since this model has served the Indian companies well bring in 30 % plus growth rates and reasonable margins, the organisation were never really forced to set up the required front-ends.
So the ga-ga years went by without enough investment in the front-end (which typically takes years). Companies became notoriously risk-averse with the 'if-it-aint-broke-dont-fix-it" mindset.
The technical capabilities did not increase as the model discourages people from becoming 'non-billable' and hence commercial dead-weight. The'onsite' assignement is a not-so-subtle part of the recrtuitment pitch for the average employee, since these companies cannot be the best paymasters in the market. The onsite assignement is willy nilly one of the more potent tools that they have to attract people and the same is projected as a pot of gold at the end of the rainbow. Coming with that recruitment pitch, there is tremendous pressure and expectation in the employee population about going 'onsite'. Over years the indians become more entrenched in the western markets largely comfortable with long onsite-assignments without any signficant increase in their capability. They continued do the mind-numbing grunt-work that came along their way - largely templatized and process-driven. They become comfortable and unwilling to come back. For companies too, it was a happy marriage in keeping the 'client' satisfied by ensuring continuity in an assignment.
Net-net, without key selling skills or technical skills it is highly undiffrentiated industry. Everyone tom-toms their quality initiatives and what-not. But at the core barring organisational DNA, they are remarkably same. And most start folks in the industry knows that the model has a shelf-life but nobody is willing to cry wolf. Nobody consciously wants to be the first in brining their margins down (and being hammered by the stock market and losing their crores of ESOPs). We have to realise that the era of super-normal profits will not continue forever. Margins have to in the long run need to be brought in line with global services companies margins. But nobody is willing to do things differently. In effect, all the firms are metaphorically frogs-in-a-soup with the temprature rising gradually eventually destined to extinction.

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