Life hasn’t been easy lately for Indian IT services companies. At least for some.
To begin with, the long reigning hegemony of India’s three largest software firms: Tata Consultancy Services (TCS), Infosys and Wipro is being challenged. As reported by the International Business Times Cognizant Technology Solutions did more business in calendar year 2015 than all three put together.
If you read carefully the financial reports of Indian IT services and business process outsourcing (BPO) companies, you notice that while the general revenue trend is still pointing upwards, the growth pace has been gradually slowing down for a number of years. And while some sectors, most notably financial services, are still strong, the growth in other IT and BPO segments is showing signs they may no longer be the cash cows of yesteryears.
Over the last couple of years, I’ve been voicing my concern to some of my Indian friends that the immensely successful business model of the past may not last forever.
In a way, it is the companies own doing.
The big wave of the data center consolidations and upgrades is mostly over. Virtualization and migration to the cloud further reduced companies’ IT footprint and weakened the growth in the BPO business. In essence, the IT service companies were cannibalizing their own business.
This trend has been going on for a while, and forward looking Indian IT services companies were on the lookout for new ways to keep thousands of skilled IT professionals busy.
While the larger and more resilient IT companies managed through the change, smaller companies struggled to make a dent in a market that has been commoditized and became a non-differentiating space owned by a handful of multi-billion IT services giants.
In an effort to rejuvenate their business, some IT services companies ventured into a new territory and started offering more lucrative and highly profitable business transformation services utilizing both organic and acquired talent. By and large, these efforts saw only moderate traction. Among the hurdles the new portfolio of services faced, was the downward pressure from established consultancy and services companies such as Accenture, IBM and HP.
The Internet of Things Opportunity
Companies are digitizing their value chain. Wireless sensors, wearable devices, integration frameworks, dashboard development tools, analytics software—the market is flooded with Internet of Things (IoT) components, modules and “platforms.” But practically no one vendor can offer a complete implementation on its own.
The problem IoT vendors face isn’t purely technical, nor is it a question of resources, although these certainly add to the challenge. A successful IoT implementation requires both technical expertise and business process knowledge specific to the industry and the business problem the system is designed to solve. It needs to be deeply engrained in the business environment, processes workflow, supply chain management, regulatory guidelines, and numerous other business-centric considerations.
IoT vendors do not possess the deep knowledge and implementation resource bandwidth to handle the growing interest in IoT from the various consumer and industrial sectors. They must rely on partners, system integrators and BPO providers to implement not only the IoT infrastructure, but also the business process flow, analytics software and, in some instances, even provide monitoring and dispatching services, all of which have been the core competency of Indian IT Services companies for almost two decades.
IoT may be the lifeline for Indian IT Services companies seeking to expand their portfolio and endeavor into new markets.
To capitalize on this opportunity, IT services companies will have to shift from their traditional human-based operating model and accounting practices to an outcome based digital transformation model, which will undoubtedly strain parts of these well-oiled companies.
And the opportunity will not come overnight, especially not in the Industrial Internet of Things. The industrial segment is moving at a slow pace, dedicated by the cadence of new product introductions, industrial equipment refresh rate, and factory updates. This sector is well aware of the digital transformation imperative, but the natural cadence of the industry cannot be accelerated easily.
The progress of IoT, especially in industrial application will continue to be frustratingly slow. But the opportunity is real and worth pursuing.