As we near the end of one more financial year, which started with so much frenzy over the post recession scenario and end with some optimism and much uncertainty, there is time to take stock and look at the environment the IT industry is facing and what could be the outlook for various sub-sectors and strata. The Tier 1 IT services firms are expected to blaze the trail with 20 to 30% growth, the second tier follow with 12 to 18%, BPO recover its growth momentum with upwards of 15% and newer segments like engineering services, product lifecycle management and gaming growing 30 to 80% depending on new innovations and their commercialisation.
The year will begin with mixed signals. The decline of fortunes of countries in the Middle East and Japan and the visa problems that companies are facing in continental Europe and South Africa have brought the focus back on the old favourites of USA and UK with India being a side bet for most firms. Increased tightening of visas and regulation and the potential supply problems continue to be a worry though a moderation of salary increases with the increased focus on fresher recruitment and moderate attrition can provide some succour to harassed talent managers. The opening up of budgets, a wider range of verticals all interested in offshore outsourcing and the expected hardening of prices albeit not more than a percent or two will all provide opportunities for revenue and margin improvement. Currency fluctuations will of course remain the joker in the pack with movements of key world currencies still largely unpredictable against the rupee.
The question that always lingers in any discussion on the IT sector is the relevance and future of the mid-tier firms. In an industry where TCS and Cognizant are setting a scorching pace followed by some of the billion dollar club members, the question that needs to be asked is what the $200-750 million players with 5,000 to 12,000 employees can do to break away from the pack. Will it be the iGate-Patni merger strategy or is growth at better than industry pace possible by vertical or horizontal or geographic specialisation?
The traditional cornerstones of a robust strategy have been product or service excellence, cost leadership or customer intimacy. One could argue that with such little difference in input cost in the industry, it would take a lot including a willingness to cut profits to the bone, for any medium size company to challenge the TCS model of scale at low cost. Cognizant with their much publicised two-in-a-box strategy have chosen the value differentiation approach, which is one of the many reasons why they are today knocking on the doors of the Top Three club.
Customer intimacy is important for any small company and companies like Zensar have built a compelling story in the last decade by demonstrating across multiple markets and service lines that smaller firms can provide equal capabilities and demonstrate a higher level of flexibility and nimbleness in catering to the needs of discerning Fortune 500 customers. It could be argued that the successful companies who will scale the billion dollar club in the next five years will be those who retain the ?small company? intimacy edge while building depth and width in their chosen areas of vertical and horizontal competence.
The McKinsey 2010 global executive survey had revealed that robust business unit strategies articulate the true source of strategic advantage after a search for alternatives, use key stakeholder insights to decide where to compete and embrace uncertainty and balance commitment and flexibility in translating strategy to action. A clearly articulated strategy supported by an enabling structure, robust systems and shared values is the starting point and success can be achieved through a strong commitment to an ambidextrous model of innovation where continuous incremental innovation initiatives are the bedrock on which competitive intelligence can identify and commercialise disruptive innovation opportunities to beat the growth numbers of competition.
The holy grail of market and opportunity share improvement is never easy to attain particularly for smaller players competing against successful market leaders but that is the real challenge which a few will address successfully. Opportunities abound in the marketplace and the rapid ascendancy of cloud computing, mobile and wireless extensions to virtually every service and the breathtaking capabilities of the semantic Web and Web 2.0 solutions and social networking hold promise for any company that thinks through their immense possibilities to bring path breaking solutions to customers. In just our retail vertical we have seen one client asking for help with multi channel retailing where the majority of purchasing decisions are moving to on-line commerce and the stores are being remodeled as experience centres while another is looking at Facebook to create fashion garment styling competitions for young teens and build new ways of marketing and merchandising on the Web.
Strategies for success are not difficult, they just need robust application of available models to think through challenges and opportunities and build a winning growth formula. Our industry is full of innovators and this is just one more mountain to be scaled on the path to global success.
The writer is vice-chairman & MD of Zensar Technologies and is Chairman of CII?s National Committee on IT and ITES
