The Indian IT Services Sector Mid-Life Crisis

The IT sector is constantly evolving, as new players emerge and transform the way we use technology. Advances in technology influence social trends and alter the way we adopt technology at work, school, home, for social networking and pleasure. This makes the IT industry very unpredictable as it constantly strives to keep up with changing technology and demands from society.
Mature IT firms in India are facing a mid-life crisis as they struggle to keep up with the rapid pace of innovation and can no longer lean on their old offerings. To survive, these companies must open new markets and invest in new ideas in order to ensure that they do not die out. For Indian IT giants, the confines of big business are not proving conducive for new ideas and innovation as the risks involved are often immense and they challenge the established order of the company. As a solution these companies are investing in start-ups that provide the ideal environment for coming up with unconventional ideas that are at the heart of innovation. It is no surprise then that mature tech firms are replacing Oracle and SAP with VC firms and entrepreneurs as their new partners.
Cognizant, Wipro, Infosys have begun investing in start-ups in the fields of healthcare, data analytics and retail to keep up with innovation in the industry. Wipro will be setting up a corporate venture department in Silicon Valley that will collaborate with over 500 start-ups. CEO TK Kurien believes that to create a turnaround in the firm, investing in start-ups is the key to ensure that the company keeps up with major developments in the IT industry. Wipro has reserved $100 million to invest in start-ups that keep up with disruptive innovations in the industry.
Unlike Wipro, Cognizant is shying away from making direct investments in start-ups. The CEO of Cognizant does not want to put money in start-ups but says that engaging with disruptive start-ups is a top priority for the company. Francisco D’Souza says, “My preference is operational investments, though I am not ruling out financial investments in the future┬ábecause ultimately I don’t want to be a passive investor in the startup. I want to be an active participant in their growth of the business.” The company has created start-ups within the organization by incubating the ideas of employees into in-house start-ups. Around 30 such in-house start-ups have been created including Cloud360 and TruMobi that are available to consumers. Employees play an active role in creating these start-ups- TruMobi and assetSERV have garnered new business offerings and have generated revenue while other ideas create an environment of innovation in the organization that helps nurture the bond with clients when ideas are bounced around leading to the birth of a new idea. Cloud360 was incepted and developed back in 2008 and enabled customers to adopt the concept of cloud computing. About 50 organizations use Cloud360- which lowers application management costs along with improving performance.
Some IT firms recruit people with start-up ideas even before they can execute their ideas into reality. Indian company Tata Consultancy Services (NYSE:TCS) has hired people with ideas in the Valley. Business is now digitalized and hence IT firms need to provide their services quickly to meet customer demands. Instead of recruiting masses of people TCS is recruiting people who have an idea and wish to execute it. TCS benefits by acquiring ownership of the idea instead of buying the technology after its establishment. TCS provides funding, global development, marketing resources as well as helps with the business side of things. TCS Global head of enterprise Satya Ramaswamy said, “The traditional source of entrepreneur funding cannot fund all ideas and is very selective. We can hire entrepreneurs and give them access to global resources”. Using this strategy, TCS has introduced 5 products in the big data space and 11 products in the mobile space. In the UK, IT firms in London’s Tech City are keen on buying ideas from the expanding start-up community. In 2011, IT firm Logica lobbied to set up a central register in universities to enable sustainable good ideas enter the commercial market. It is still being debated if informal networking between start-ups and their IT firm suppliers is a prompt way to turn IT ideas into real-world products and services without stifling innovation.
Top IT companies have been firing employees on a mass scale citing cost-cutting and strategic reasons. However, the core reason for firing employees is the struggle to cope with the fast paced innovative nature of the industry where there is no place for complacency. In Dec 2014, evidence acquired by Trak.in indicates that India’s largest IT services company, TCS, plans to fire up to 25,000 to 30,000 employees in the next few months. Mid-level managers are being targeted in these lay-offs who have shown little or no improvement in the previous years. This highlights how TCS is unable to provide job security to their employees due to the demands of the industry. However, TCS also plans to hire 35000+ new employees who will be more suited to work with fast-paced innovative IT disruption and who can successfully network with start-ups to finance new ideas. Yahoo India in October 2014 has fired around 500 employees from the Software Development Center for similar reasons. These mass lay-offs, to ensure that companies thrive in a dynamic and ever-changing IT industry, indicate that job security may only be possible if one is willing to innovate and keep up with the pace of change as these firms struggle to survive in the era of start-ups and innovation.
How well the top dogs of the IT services industry will be able to cope with the disruptive nature of the industry is uncertain. They recognize that they are swimming against the current. Who will survive ? Only time will tell.

One thought on “The Indian IT Services Sector Mid-Life Crisis

  • The Indian IT model sounds little broken in today ‘s times and needs to re-invent fast. The Global demand in Financial sector which contributes to majority of revenue is declining and newer technology on which Indian IT co’s are betting in space of Digital are yet to establish themselves. But one good thing about this is a better eco-system for Indian startups and talent and probably we will we also come out of offshore delivery tag. It’s going to be an interesting year for IT co’s.

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