Co-authored by Nitin Seth (Fidelity Worldwide Investment) and Subinder Khurana (Cognizant)
Technology is continuing to evolve at a dazzling pace and changing the world around us significantly. There are four technology driven megatrends that are especially noteworthy – Big Data, Cloud, Social Networks and Mobile Devices. More than 4 billion people now use cell phones. If Facebook users constituted a country, it would be the world’s third largest, behind China and India. Data is now measured in Peta Bytes not Tera Bytes. Clearly, these are very significant changes.
On June 21, 2012 we had a NASSCOM CEO Series panel discussion in Gurgaon to explore the implications of the above trends for the India IT/BPO industry. We were fortunate to get together a star cast of industry leaders for this discussion. These included Pramod Bhasin (Genpact), Raman Roy (Quattro), Pavan Vaish (formerly IBM Daksh, now UnitedLex), Subinder Khurana (formerly MarketRx, now Cognizant) and Arvind Subramanian (BCG). I had the honor of moderating this panel discussion. In this note, I have tried to synthesize key insights from the discussion. We tried to answer the following three sets of questions in the panel discussion:
- What are Indian IT/BPO companies doing today with these trends – separating hype from reality?
- What are implications of these trends? How is the IT/BPO industry likely to evolve over the next 3-5 years in response to the trends?
- What should the industry and the government do proactively to retain and strengthen the leadership position of the Indian IT/BPO industry given these trends?
Current state of play
Indian IT/BPO companies are expanding their service offerings and developing new business models in response to the four technology mega trends. Most of the emphasis has been around Big Data and Cloud.
There has already been significant activity in the Analytics space in India over the past 5-10 years. This is getting a further boost with the growth of Big Data. An industry pioneer like Genpact already has a 5000 people Analytics capability that accounts for 10-15% of its revenues. Moreover, many specialized Analytics companies are emerging to capitalize on the Big Data trend. Capabilities have already evolved beyond MIS/reporting to Predictive Modelling. Given the increasing “Velocity” of data in particular driven by Social Media, companies are responding to develop “Execution” analytics capabilities that allow real time tracking and decision making.
Indian companies are beginning to leverage Cloud in particular to expand services to the “mid-market”. Many are moving data storage and computing of existing applications to the Cloud. Some BPO companies are also beginning to leverage the Cloud for services. A notable example is Quattro that is serving 11,000 mid-market clients using cloud based services. In addition, it is directly serving 500,000 individual customers. According to Raman Roy, Chairman of Quattro, cloud based services account for 80% of their revenues. This business model is 30% more profitable than the traditional BPO model though challenges remain in refining the go-to-market approach.
Social Networks are one of the main drivers for explosion of Big Data. However, their impact does not end there. Companies are using Social Networks for brand building, seeking customer feedback and providing customer support. The later is particularly interesting for Indian IT/BPO companies. New customer support models are developing leveraging Social Networks. These are collaborative models that involve sharing from users and often lead to faster response.
Implications and likely industry evolution
To understand 3-5 year implications of the Technology Megatrends on the Indian IT/BPO industry, we asked our panelists the following four questions:
- How are business models likely to evolve? Will service offerings and selling strategies change? Will we see emergence of specialist organizations?
- What are likely implications on delivery capabilities? In particular, what are implications for talent development?
- How are the economics likely to evolve? How will pricing models and investment requirements change? Will the margins come under pressure?
- What are implications for India's position as a pre eminent Offshoring destination? Moreover, what are implications for Offshoring generally, and location of employee as a driving factor?
Consensus response from our panelists was that these Megatrends are more a source of opportunity than disruption for the Indian IT/BPO industry. While there will be pressure on the traditional FTE based offshoring model, it will not go away. It will remain as an important segment but might get commoditized. More interestingly, there will be opportunities for the Indian IT/BPO companies to evolve beyond their traditional FTE based back-office centric services model to explore more “front-office” based products and services. We will see a lot of innovation and original IP creation by Indian companies in exploiting these opportunities. We are also likely to see the emergence of completely new players (just as leaders like Genpact and Daksh emerged with the BPO industry) to join the league of existing leaders. There are three areas in particular, where our panelists expect new business models to emerge:
- B2B models - There could be opportunity for new B2B business models leveraging the Cloud. These could involve the Indian IT/BPO companies owning the proposition and being able to extend reach well beyond their traditional customer segments. However, to make the above happen Indian companies would need to develop IP, stronger brand and go-to-market skills.
- Analytics - As the volume and velocity of data increase, analytics will have to evolve beyond traditional delivery models. Descriptive and Prescriptive analytics have been used in the past to allow humans to understand data and act on it. However, increasingly there will be need for computers to execute rather than support decisions. For example, real-time analytics for eCommerce, or auto-agents which self-heal PCs, or a Telematics-based car insurance premium calculator. There is no time for a human agent to act. Another key area for analytics will be extraction of relevant data and insights from large amount of unstructured data being generated especially from Social media. These new analytics applications will require new skills, new delivery models, as well as create new billing models and revenue opportunities.
- B2C opportunities - Our panelists felt there could also be opportunities to develop new B2C propositions from India. Technology Megatrends will facilitate the development of “virtual disruptive companies” that change existing industry value chains. For example, we might see development of virtual insurance companies or investment banks. These disruptions are now possible because the costs and implementation times are coming down dramatically and talent can be accessed from anywhere in the world. This new competition could come from anywhere and Indian IT/BPO companies have a good opportunity to play a lead role in the emerging discontinuities. They have built significant business knowledge over the past 10-15 years that gives them a basis to participate in the core business. In addition, many Indian IT/BPO companies have a healthy balance sheet that can be utilized for buying distress assets that can provide the foundation for these “virtual disruptive companies”. Partnership with companies and/or industry veterans in the western markets could be a good option for the Indian companies to progress on these opportunities.
Imperatives for the industry and the government
Indian IT/BPO companies would need to adapt their delivery capabilities and business models to realize the new business opportunities. In particular, they will need to expand their skill sets that are currently back-office oriented to more marketing and core business knowledge centric. They will need to change their mindsets and capabilities from execution to investing in IP creation. Moreover, they will need to put more emphasis on branding and engaging with the end customer. If Indian companies are able to make this transition, we could then see many new world-class companies emerging from India.
Government and industry need to partner to create an ecosystem that will facilitate the emergence of such new world class companies. In particular, three set of issues need to be addressed:
- Talent creation - Need to continue investing in developing talent pipeline for the IT/BPO industry. In particular, there is a need to identify new skill pools required to capitalize on the Megatrends and invest accordingly. As mentioned, the new skills required will be different (and of a higher order and more specialized) than the traditional skills. We need to aim for the skills that will be required in the future, not just the current requirements. For example, there is a great shortage on analytical talent across the world. India could consolidate its advantage in this field if it can invest in a focused way to create larger pool of specialized analytical talent.
- Legal framework - Business is now not confined by geography but by the Internet. This is getting accentuated by the technology Megatrends. Increasingly IP will be created and owned collaboratively across borders. Cybercrime will be committed across multiple jurisdictions. We need to evolve our legal and law-enforcement framework to reflect this new reality. In addition, we need to create international partnerships to enable real-time collaboration between authorities.
- Data Privacy - Explosion of Big Data and Cloud makes Data Privacy an even more important imperative. Data Privacy remains an obstacle to the adoption of Cloud. Moreover, Data Privacy regulations need to be reviewed in light of the new sources, nature, scale and residency of data.
In summary, technology Megatrends are progressing at a rapid pace and already having a significant impact on the IT/BPO industry. They could open up significant opportunities for the Indian IT/BPO companies to leapfrog and to lead. Indian IT/BPO companies could develop beyond their “back-office” service provider role to more IP-ownership and “front-office” based propositions. Government and industry need to partner to create an ecosystem that will help the Indian IT/BPO companies realize these breakthrough opportunities.