The Times They Are a-Changing: How The IT Industry Can Turn The VUCA TIDE
Come gather 'round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You'll be drenched to the bone
If your time to you
Is worth savin'
Then you better start swimmin'
Or you'll sink like a stone
For the times they are a-changin'.
No better song than this timeless Bob Dylan masterpiece to capture the essence of the issues ailing the Indian IT Industry! The behemoth that is the Indian IT industry, generates ~$155 B revenue annually, employs ~3.7 M people, and contributes 9.3% to the country’s GDP. It has been a cornerstone of the Indian economy for the past decade and a half, but the going has been tough in the past few years with tapering growth rates and declining margins. While this decline in fortunes is not sudden, the recent news about headcount reductions (or ‘rationalisation’ as many prefer to call it) has put the spotlight firmly on the Indian IT firms. Some of the factors attributed to this VUCA (Volatile, Uncertain, Complex, Ambiguous) business environment include: •
Declining RPE (revenue per employee)
•
Emerging prevalence of efficient technologies like AI and Robotics Process Automation
•
Rising protectionism in key markets
Majority of the talk has been around “Digital Transformation and Automation” being vastly responsible for this ambiguity and uncertainty in business. There is no doubt that some opportunities will be cannibalized and the workforce must adapt to the changing environment. However, this is not a new phenomenon. Historically, technological advancements have brought radical changes in the business, improving the productivity but at the same time generating newer growth opportunities. Tata Group chief, Mr. N Chandrasekaran provides an apt example, “The emergence of packaged software as a replacement for custom-built software seemed to create a threat for IT firms, but the shift created more new jobs in implementation, support, and maintenance of packaged software than lost in custom development.”
While there are multiple ways forward to deal with the rough tides, we believe there are two broad areas which require immediate attention: HR Strategy: A huge onus lies on the HR function to ensure availability of skilled talent at the appropriate time. 1. Campus Recruitment – Train them young Regardless of the large number of engineers graduating from India, there is a dearth of skilled, employable talent. According to Aspiring Minds, India’s leading employability solutions company, only
17.91% of graduates are trainable into software engineers within a period of 3 to 6 months. The study also found that the candidates lacked considerably in technical, soft, as well as cognitive skills. Companies should start investing in the potential candidates right from their academic years by partnering and hiring from shortlisted Tier II/III colleges. Focus should be on training students as per industry requirements (both current and future) from the early years in campuses. Deeper campus relations are the need of the hour to stay ahead of the curve and create a future-ready talent pool in emerging tools and technologies. 2. Learning and Development – Identify and train the trainables The business requirements have already changed from “Scale to Skill”. Companies not only have to focus on workforce optimization but also invest and channelize their learning and development strategies. The delivery-oriented mindset needs to be changed and focus should be on developing business acumen. According to Mr. Ramkumar Narayanan, Member Advisory Board, Zinnov, “One of the glaring gaps in today’s workforce – many do not understand the sector in depth and depend on others to tell them what needs to be done.” Companies should not only invest in developing technical skills but also try to train employees to look at the broader picture involving business challenges. It is imperative to identify the right section of the workforce which can be reskilled and map them to an appropriate technology / skillset based on market demands and employee background. As N Chandrasekaran believes, “There are no legacy people, only legacy technology.”
GTM Strategy 1. Distinguish Between Legacy and Digital offerings The industry-wide robust growth in the new age technologies like Artificial Intelligence, Blockchain, Virtual and Augmented Reality, Cloud, IoT, Analytics, etc., is not in direct correlation with the revenue generated by service providers from these offerings. The bulk of the digital revenues are from the reenveloping of the old traditional offerings like data migration, testing and support, etc., To prepare for this shift in technology focus, digital offerings need to be clearly defined and separated from legacy offerings. Also, performance metrics like RPE and margins should be calculated distinctly for legacy and digital offerings and workforce should be optimized accordingly. 2. Redraw the Customer Playbook
As per a recent Zinnov Zones study, new age models like Outcome-Based/Risk-Reward, Duration and Usage-Based, etc., contribute to ~20% of the engagements, and this number is expected to increase in the future. Along with the traditional models of Fixed Price and Time & Material, etc., Service Providers should also focus on creating and defining the value generated (either revenue increase or cost benefits achieved) from the engagement and price their engagements accordingly. The ability of service providers to design and truly execute risk-reward business models remains a concern for customers, and there is a big whitespace in this area which can be addressed through revamping project planning and execution. This will not only contribute to sustainable top and bottom lines but also will put more onus on the individual as well as the management to invest in skill development. 3. Move Closer to The Core Digitization and Automation have consumed the lion’s share of the contextual activities outsourced. Building core technology understanding and expertise is crucial to remain relevant in the planned customer journey. Service Providers should try to position themselves in the higher end of the value chain by collaborating and working closely not only with large enterprises but also with the start-up ecosystem in the product development cycle. Focus should be on GTM and 360-degree partnerships, so that the employees not only get the opportunity to understand business dynamics but also remain up to date with the changing technology environments. There are murmurs about this being the most VUCA time in the IT industry lifetime, but as in many cases, this could be the recency effect at play. The IT industry has survived various threats over its lifetime and only emerged stronger in the process. Although there seem to be larger disruptive forces at play in the current scenario, there is no reason to not believe that the IT industry can overcome this threat of workforce optimization and emerge stronger with new business and people strategies.