Will india make it – 2016? IT spending is likely to be muted

From an IT industry point of view, investments in digital transformation of processes and services have been less than dramatic so far

The IT industry in India is at a cross roads yet again. After weathering multiple storms in the last 15 years and continuing to grow in spite of the odds, this time the dilemmas are serious. The next 12 to 18 months will determine the new winners and consign quite a few successful companies of the past to the dust heap of history.

The biggest challenge continues to be the sluggish nature of economic growth in every economy. With the notable exception of India, which holds out the promise of near 10% growth for a decade if the political contradictions get
resolved and the USA where the relentless march of innovation is expected to see a period of optimism leading up to the next Presidential elections, the mood is somber elsewhere. The twin problems of terrorism and jobless growth will keep Europe, Brazil and possible China and Russia cowering with the fear of a prolonged period of slowdown. While the excellent sales reported on Black Friday and Cyber Monday in the US may create hope for the High Street in London and Europe as well, IT spending, particularly on new and transformational technologies is likely to be muted for the best part of 2016.

A compounding factor is the accelerated moves being made towards digital transformation. Corporations around the world have been making rapid strides in their digital commerce agenda. “Digital attackers” of the ilk of Amazon, Uber and Airbnb have successfully stolen over 20% of the market share of the incumbents, in many cases without any significant investments in any asset of their own. Most incremental investment in technology by large and medium enterprises, particularly in customer oriented industries like retail, banking, insurance and even healthcare has moved to digital and a recent Mckinsey suggests that by 2020, nearly 35% of technology investments will be in digital.

With increasing use of robotics, sensors on the shop floor and big data to fine tune maintenance and machine management cycles, manufacturing too is embracing digital, helped by the rapid evolution of IoT ( Internet of Things ) and the rapid commercialisation of new enabling technologies for better panning scheduling and supply chain optimisation.

Companies like UK High Street Retail giant Burberry with its vision to be a design, marketing and retail-led organisation targeting millennials in their twenties with a digital agenda focuses on customer experience and operations excellence and GE with its motto “anything that rotates generates data” and deep investments in predictive analytics and the industrial internet are creating urgency in their competitors to “do” digital transformation at a visceral rather than superficial level. From an IT industry point of view, investments in digital transformation of processes and services have been less than dramatic so far with social listening, mobility and big data investments happening incrementally and only cloud migrations seeing some big bang initiatives. The industry needs to convince its clients to embrace business model innovation of the kind Nike has undertaken in its transition from being a sports goods manufacturing company to a sports coach with significant investments in wearables, IoT and comprehensive data analytics to track and guide customers every step of the way. Opportunities in building e-commerce platforms for B2C retailers are being tapped well and it is the next phase of B2B digital transformation with extensive use of emerging technologies like the Internet of Things which can provide some meaningful projects of scale to the industry.

There are as many challenges as there are opportunities in the digital transformation space. The cannibalisation of over 20% of current revenues in applications and infrastructure management through rapid public private and hybrid cloud deployment and everything—software, platforms, infrastructure and business processes available as a service is already evident and order of magnitude changes in research budgets and employee education to reskill them for the digital world are imperative for all IT and business management firms if they have to sustain double digit growth levels. New models of consumption of IT will also necessitate mastery of dual speed IT practices in user organisations and vendors. Ecosystems of product and platform partners will have to be embraced by Indian IT firms as they transition from the previous successes of applications management and business process outsourcing specialists to becoming cloud brokers and digital
systems integrators.

The good news is that the DNA of innovation and adaptability to new “agile” methods and new sourcing models is intact in most of the top 20 or 30 India listed firms and many of us are gearing up for the new challenges that continue to be posed by the aggressive as well as defensive digital moves of our clients. In an industry where substantial automation and productivity improvements are the order of the day, 2016 could well be a watershed year and it will be interesting to see who are the firms who can deliver double digit organic constant currency growth rates as corporations chart their own growth agendas in a turbulent world!


Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 31-12-2015 at 00:25 IST