Last week, some of the biggest names in outsourcing gathered in Mumbai for the 25th Nasscom India Leadership Forum. In the past, this event has served as a celebration of the Indian IT industry’s phenomenal success, but this year’s summit comes at a time when the sector is facing challenges which threaten its very survival.
Dominating the build-up to the event was speculation about the impact on India’s IT vendors of greater US protectionism. In his inaugural address, new president Donald Trump pledged to “buy American and hire American,” so the industry was braced for the introduction of restrictive visa legislation once he took office. However the proposals that have emerged in recent weeks, including plans to double the minimum annual salary of H1B workers to $130,000, are even more severe than had been feared, sending shares prices plummeting across the industry and causing widespread alarm.
The election of a protectionist administration in the US, and the concurrent rise in anti-globalization sentiment in Europe, could not have come at a worse time for an Indian IT industry already struggling to cope with significant shifts in the market. The traditional offshore model is being rendered obsolete by a combination of factors, most notably the growing adoption of cloud-based solutions and other digital technologies. At the same time, enterprises are reining in discretionary spending and reducing the size of outsourcing engagements, cutting into revenue streams.
That the leading lights of Indian IT have so far struggled to adapt to the changing environment is evident from even the most cursory look at their financial performance. TCS, for example, has seen its revenue growth rate drop from 15% in fiscal 2015 to less than 7% in the first nine months of its current fiscal year, while Infosys was forced to cut its revenue guidance not once but twice in its most recent fiscal year.
The creeping sense of crisis has been further exacerbated by turmoil behind the scenes at these bellwether firms. In January TCS found itself dragged into the bitter management power struggle at Tata Sons when its CEO Natarajan Chandrasekaran was chosen to replace Cyrus Mistry, whose firing by Tata management sparked a very public war of words. Meanwhile, at Infosys, management has, over the last week, been forced to publicly deny allegations of a significant rift with founders over how the company is being run.
Media coverage of the unrest at Infosys has highlighted a number of areas of disagreement, including executive compensation and severance pay, with Narayana Murthy, the company’s first chairman, stating that there had been “a concerning drop in governance standards.” Beneath the surface, there are also suggestions that some of the company old guard are unhappy with the company’s direction under CEO Vishal Sikka, who joined Infosys from SAP in 2014. Sikka has made no secret of his desire to radically change Infosys’s strategy. In the company’s 2015-16 annual report, he wrote: “Our context has fundamentally, and irreversibly, changed, and we cannot go back to the approaches and methods of the past.”
Stories in the Indian press have suggested that not everyone associated with Infosys supports Sikka’s agenda. In The Times of India last week, anonymous sources described as being close to the board said “most of the founders are still attached to a business model that is facing an existential crisis,” and were too conservative when it came to investment.
Change is never easy, particularly for a company like Infosys that has achieved great success with a tried-and-trusted business model, but Sikka was right to identify the shifting context impacting Indian IT and to recognize that Infosys must transform along with it. He was also right to identify automation as key to this transformation. Addressing shareholders this week, he said: “If you look at the 3.5 million people in our industry, the only thing that I see in the future is automation.”
The importance of automation to the business of the future was highlighted in a ground-breaking recent study from Goldsmiths, University of London in association with IPsoft. The study, published as FuturaCorp: Artificial Intelligence & The Freedom To Be Human, found that enabling companies to automate repetitive tasks and redeploy humans in higher-skill roles will enable the so-called “FuturaCorp” to realize a productivity jump of up to 3.5 times that of today’s organizations.
In its introduction to this year’s India Leadership Forum, Nasscom highlighted the need for India’s IT vendors to make “bold moves” and implement “fundamental changes.” This is easier said than done, but the potential rewards are staggering – McKinsey estimates the economic impact of automation tools and systems on knowledge work could be as much as $6.7 trillion annually by 2025. There is no doubt that India has the capability to be a leader in this emerging market, but the IT industry must have the courage to move away from the low-cost model that made its name in order to fully embrace the new world.