Digitalisation presents a mixed bag of opportunities, challenges to Indian IT sector

The pandemic-brought jet-speed acceleration in tech adoption and digital transformation in the global marketplace with Indian IT companies winning billion-dollar deals, has exposed domestic tech vendors to a huge bundle of business opportunities and challenges.

Digitalisation truly opened up a flood gate of opportunities for systems integrators (SIs) that will require them to showcase their strongest suite of capabilities yet. But they also have a number of tough tests in front of them, as the Indian IT sector wrestles with the challenges presented by the fast-moving global digital transformations movement, say global tech analysts.

Cos forced to hike salaries

Analysts say there is a huge shortage of digital talent while retention is getting tougher. This has forced companies to increase salaries for digital talent. There is also a significant spike in cyber security and vulnerability incidents, more so in the last 15 months. Above all, pricing and operating models have undergone a drastic change in the last year. These are some of the key concerns faced by the domestic IT players.

Peter Bendor-Samuel, CEO of Everest Group, a Dallas-based analyst and advisory firm said, “The new market demands new skills which require the industry to retrain much of its work force and hire new and more expensive talent.'' “Most of the retrained employees for digital skills expect to be compensated at a much higher level. Firms that are slow in providing this compensation adjustment are likely to lose their employees and investments they made in retraining,'' cautioned the Everest Group chief. According to him, new digital models require persistent teamswhich poses a huge challenge to the established operating model of the industry with its talent pyramid structure which relies on churning employees through roles to keep the mix of employees cost-effective. “The persistent team structure is more expensive to operate and requires a rethink of employee career planning and retention.''

Breadth, depth of vertical specialisations

Hansa Iyengar, Principal Analyst, Enterprise IT Strategy at Omdia, a London-based firm said, “Success will come to those SIs willing to make the commitments and investments needed to build or acquire skills and presence across digital and emerging tech like AI/ML, IoT, AI, Cybersecurity and the digital workplace.” In addition, she said, customers were asking for more breadth and depth of vertical specialisations as they look for an end-to-end solution for a business problem – which is a deviation from the affinity for point-solutions that existed before the pandemic struck. “Striking a balance between going broad and going deep is one of the major challenges that outsourcers will face in the next couple of years and how they achieve this will define their future trajectory,” Iyengar opined.

Commenting on attrition, Avinash Vashistha, Chairman, Tholons, a globalisation consulting and investment firm said, “We see over 30% of on-site job opportunities migrating to India and other technology hubs like Eastern Europe and Latin America. This has resulted in higher attrition in IT firms (12 to 15%) and see a salary increase in digital platform skills go up by 20%.” The opportunities and higher margins for IT firms will sustain for only those who integrate innovation at scale,'' observed Vashistha, also former Chairman and CEO of Accenture India.

Apurva Prasad, Institutional Research Analyst- IT, HDFC Securities, was of the opinion that the more apparent near-term challenge of Indian IT was the supply-side impact and rising attrition. “But we believe on anecdotal evidence that attrition has peaked and the attrition taper will reflect with a lag from 3Q FY22. In the interim, the supply-side crunch for highly-skilled talent (not a homogenous feature) will discourage price aggression in large deals,'' he added.

The industry apex body Nasscom said digitalisation has never been this key ever for CEOs who are now looking at digital as a critical business imperative. Everything around digital transformation was positive and the only downside was the increasing threat on cybersecurity, it said. “Everything around digital transformation is positive and the only downside could be cybersecurity issues. Companies have to invest to build secure systems to protect themselves and their customers' data,'' said Sangeeta Gupta Sr VP & Chief Strategy Officer. ``There is a lot of pressure on talent as well, as everyone is tapping on the same talent pool,'' she added.

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