The Hindu Business Line : IT elephant

How is the IT (information technology) services industry shaping up and evolving? This is a function of the way many drivers of the industry will play out but a very important one is the role of the customer who pays for the services, say Was Rahman and Priya Kurien, authors of Blind Men and the Elephant ( www.sagepublicaitons.com).

“The question is whether the customers will continue to not care how IT delivers to them or will they begin to apply stricter norms of what can be classified as success and value delivered by IT,” they add. “Other factors include the role of innovative technologies, demographics of end consumers and what they want from large businesses, the demographics of employees.”

A sobering thought that should be for the IT industry, which has globally grown to a trillion dollars within a few decades. For, despite its rapid growth, the industry remains as one of the least understood one, rue the authors, who both belong to Dolphin Advisory ( www.dolphin-advisory.com), a Bangalore-based firm that helps ‘spot and nurture entrepreneurs with the potential to disrupt markets and business models through technology’.

Rahman, the CEO and co-founder, has held leadership positions in major IT companies advising business and technology executives on how best to take advantage of the changing role and potential of IT and created business models by exploiting new technologies for many blue-chip companies. And Kurien, the managing director, has worked with Infosys and EDS, and led early Internet application projects using the global delivery model. She has also spent several years in SETLabs. The duo’s ‘Elephant’ book, aimed at demystifying the global IT services industry, looks at the industry’s fascinating history and also discusses questions such as why the industry enjoys such a unique status around the world and why some organisations have succeeded so far.

Excerpts from an email interview.

First, a definition of IT services.

The short answer is that IT services help businesses get value from IT — they do this by connecting and translating how IT can make businesses run better.

IT services is an umbrella term covering several types of services ranging from:

Advisory services that understand what a business is intending to achieve and providing advice on the role of IT in the organisation;

Implementing and customising off-the-shelf IT packages or products;

Creating custom built IT systems;

Providing support for the hardware and software;

Maintaining and enhancing the IT packages/products or custom built applications.

Which is going to be the order of the day in the future: readymade software or tailor-made software? Or will both coexist?

All businesses have problems to solve; many of these problems are similar across many or even all companies. The more these problems have in common between companies, and the more businesses can adopt standard ways of doing things (as in HR, finance, manufacturing processes etc) the more there will appear ready-made software to solve those problems. But in some industries (for instance, financial services or retail), some parts of their IT systems are unique, and provide competitive advantage. For these areas, custom-built or at least customer-configured IT systems can provide a differentiator over competitors. As long as businesses continue to use IT systems for competitive edge, not just efficiency, there will be tailor-made software.

Many non-IT companies still manage their own IT infrastructure? How long do you think this trend will continue?

There was a wave when many non-IT companies experimented by completely outsourcing their IT infrastructure but then brought it back in house to manage. The reasons were many and varied: dissatisfaction with the IT service providers, loss of control over their own business (IT systems tend to be the document of a company’s business process), and discovery that IT was more core to their business than they may have envisaged.

Just many other functions are assessed, companies need to decide how core IT infrastructure is to them. Those for whom it is non-core will tend to look at outsourcing the function, while others will keep it in house because they don’t want to risk an outsider looking after it. Even if much of the commodity infrastructure is outsourced, as long as businesses have new systems to develop, there is a need to interface with the business to understand what they need.

The cost of IT services is very high and technology also becomes obsolete very soon before realising a return on investment. What is your opinion?

In the chapter of the book “Succeeding Today”, we look at this particular phenomenon on the role of technology hype, and we term it the “Promise Cycle”. One of our findings was that it is certainly true that technology refresh cycles have reduced from being an average of five-sevenyears in the past to 18-24 month cycles today. We can see that both the product and service companies benefit from this rapid obsolescence — whether producers of hardware and software, or providers of IT services to evaluate and implement upgrade options. But the more interesting thought to ponder is why customers don’t seem to be demanding and insisting more strongly for an unambiguous return on investment in the way they do automatically on most other fronts. The need to see value seems to be interpreted very differently when it comes to investing in IT.

The reality today is that the industry goes through a number of Promise Cycles, with some technologies delivering value, others not — but all too often the customer seems to be little more than a bystander, therefore not asking the tough questions that might trigger a change.

How long can India survive by providing only IT enabled services sans software products with a foreseeable strong rupee against dollar?

The success rate of software products globally has been less than one in a 100, therefore the investment levels are heavy and success not a given. The question behind this question is about how Indian IT services firms deliver value, and has reared its head most recently because of the rupee. Rather than focus on product vs services, the real point is that there will be an even stronger need to look how value is delivered, instead of relying blindly on labour arbitrage. One reason the industry continues to grow is that the leading Indian firms recognise this and are working on it, and so as they develop and shape the industry, so the industry can continue to grow around these changes.

How successful have the Indian companies been in IT services?

There are a couple of things that India has done to the IT services industry. One was to show the characteristic of on-time and within-budget delivery is something that can be expected as the norm. But more importantly it’s also been bringing in a much better success rate for the quality of project work delivered. This is especially relevant in the case of development projects, which previously had a poor success record. A key reason for this is because for a team that is not at the client location but based in India, building a system requires much more precise specification. Therefore the Indian firms invest time up-front to get specifications for what is required before moving into actually developing the systems. Initially this was to “prove” that the offshore model can work; hence, increasing the success rate of projects was an important proof point.

The challenge, however, is that the total percentage of development that India does compared to in-house or western onsite teams is still tiny. The $18 billion total revenues of India’s IT services exports are still less than 3 per cent of the total IT services pie. Given this and the fact that the percentage of maintenance projects in the publicly quoted Indian firms is quite high, Indian industry is not really in a place yet to change industry statistics in a major way - but they have however changed perceptions and shown that it is possible to get success. We certainly found the whole industry, particularly the early history and long term future, far more interesting than we had expected it to be.

In the present scenario, which policy of the government do you think can give a boost to IT services industry in India: liberalising FDI (foreign direct investment) or providing fiscal incentive?

We haven’t looked specifically at the Indian industry and its relationship with government policy in our book. However, what we have articulated is that the top three Indian players — in particular with their emphasis on profitability and solid growth — are demonstrating that IT services can be made a very attractive business by doing things that global giants have not been able to achieve. People tend to put this down to labour arbitrage, but that would be doing a disservice to those leading the pack. Just as many goods remain competitive because firms have used China for manufacturing, Indian IT services organisations are demonstrating that India could do an equivalent on services.

On the significance of the title of the book and its correlation with IT services.

Over the years we have been in this industry, one thing each of us has experienced is that almost everybody in and around the industry has an opinion on where it is going, why it is the way it, why the winners succeed and the losers fail. It doesn’t seem to matter whether they are lay people, customers, employees (senior and junior), analysts or policy makers (and of course journalists!). It hasn’t mattered if they don’t have direct experience of the subjects talked about, nor facts to back up these views. To this day it still surprises us how strongly so many people believe they know the answers to some very big questions. And yet there is so much variety in these answers, they can’t all be right.

After doing extensive research for the book, in addition to our own career experience, we are concluding that very rarely are such stakeholders right about the industry as a whole, primarily because each has a specific interest in the industry, and therefore an equally specific perspective. Thus, most people are only able to see their particular slice clearly, and can seldom lift their heads up to see the bigger picture of the industry.

Godfrey Saxe describes a set of blind men who are in front and around an elephant, and each touches a different part such as an ear, leg, tail and so on. He very deftly describes the blind men with their strong opinions on what they have in front of them — despite each knowing that the others see it differently, and that they themselves don’t have all the data. In his words, they “Prate about an elephant/Not one of them has seen!” We just couldn’t resist!

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