Its the best of times, worst of times

Updated: Dec 31 2007, 06:08am hrs
The line It was the best of times, it was the worst of times from Charles Dickens Tale of Two Cities sums up the saga of the Indian IT services industry heading into 2008. The industry continues to defy gravity and has an expanding presence in the global IT services industry, even in the face of seemingly insurmountable oddsresource crunch, weakening dollar, sub-prime crisis, recession fears in the US etc. Short to medium term (till 2010), there is more than enough demand to sustain this pace of growth. The bigger challenges emerge in the longer termpost 2010period. However, the steps taken over the next 12 to 24 months by the industry in general and the Tier 1 providers in specific will set the stage for the long-term prospects of the Indian offshore industry. They will need to make decisions that balance the short-term opportunities with the long-term risks of a business as usual approach.

The factors driving this schizophrenic state of affairs are discussed below, with both the positive (drivers) and negative (inhibitors) factors being outlined.

Scale

Driver: The scale of operations overall and at individual project levels that the Indian providers have achieved has been a massive advantage for the Indian offshore industry, since clients looking for that level of scale have few other options anywhere in the globe, including, often, within their own country. As one US-based CIO put it, his value proposition for the Indian offshore model was unlimited scaleIf the business can find the funding, I know my Indian providers can staff the project, no matter what the size of the project is!

Inhibitor: Feeding the scale advantage has required a pace of hiring that has literally used up most of the available resource pool. The issue is not so much the physical quantity of resourceswhich are still plentifulbut the quantum of employable resources, which is a much smaller percentage (about 20-25% in my assessment) of the total graduate pool coming out of colleges every year. Interview: Hire ratios that were at 2-4: 1 (i.e. for every person hired, the company had to interview 2 to 4 people on average) a couple of years ago now stand at an almost untenable 15-18:1.

So, if a company were looking to hire about 5,000 resources in a quarter (about the pace of recruitment for the large providers) they had to look for a candidate pool of about 70,000 in that quarter! No other industry anywhere in the world at any point in time has had to contend with that pace of recruitment.

Process capability

Driver: This factor, marketed effectively by the Indian providers by creating a buzz around things like CMM / CMMI Level 5 certifications as a key differentiator, is arguably the one factor that has propelled the Indian offshore industry to the levels it is currently at.

Inhibitor: As projects that the offshore vendors are working on is increasingly less amenable to being defined to the nth degree, the inherent rigidity imposed by a process centric approach becomes a liability. For Indian providers, being able to support a concept that Gartner calls Just Enough Process will be key.

Education system

Driver: The Indian education systems focus on conformity, discipline and adherence to authority, as well as a relentless emphasis on mathematics and technical knowledge has helped it achieve its current status in the global IT world.

Inhibitor: As the need arises for greater behavioural skills and the ability to deal with higher levels of ambiguity and the need to side-step the process where appropriate, the current Indian system is seen to be lacking in creating this capability. A significant revamp of the education system is needed to address this evolving need.

Increasing client expectations

Driver: From the early staff augmentation days of the start of the India offshore story in the late-80s, the onward march of client expectations of their Indian offshore vendors has been relentless. Ability to meet these expectations has accounted for the sustenance of growth rates that are unprecedented in any industry through history.

Inhibitor: Client expectations however, are now headed into territory that is on the fringes of the Indian vendors historical sweet spot of leveraging technical talent and process centricity. It is not yet certain that these companies will be able to expand their (admittedly impressive) agility to respond to this new reality. Tier 1 enterprises that have not demonstrated this capability over the next year to 18 months will be at risk of having an unviable business model heading into 2010!

Prescription for continued long term success:

A do nothing approach will still almost guarantee the Indian offshore industry growth at the current pace for the next two years. The cliff potentially approaches beyond that period. The bottom line to continue the success achieved thus far, is that companies have to assess the impact of the inhibitors outlined above and craft a strong and enduring response to address those issues. Some of the solutions will require strong and concerted steps from the industry and government, while other solutions will need to be driven by changes in individual company management vision and behaviour. Even for those long gestation period issues that require broader industrygovernment action, individual companies will have to put in place short to medium term solutions to address these needs. The next 12 to 18 months will bring the Indian IT industry to a very significant fork in the road and, to quote Robert Frost, it will have to figure out how to take the road less traveled by, and that will make all the difference. Is the industry up to it

The writer is vice-president and head of researchGartner India