Indian IT – Crisis Or No Crisis?

2 June 2017

Wipro lays off 600 employees due to poor performance.

Cognizant fires 6000 employees consequent to its annual appraisal.

So on and so forth.

The media is full of bad news about the Indian IT Industry. Notwithstanding that, rumors of existential crisis for the industry are grossly exagerrated.

Whether you use a bell curve or a parabola or good old gut feeling, 5-10% of any IT company’s workforce are non-performing at any given time. Indian IT employs 4 million people directly. 5% of that works out to 200,000 people. As of now, layoffs total to 56,000, which is no where close to 5%.

So the media is making a mountain out of a molehill.

That’s also what NASSCOM co-founder Saurabh Srivastava says in his Economic Times op-ed dated 27 May 2017.

Now, let’s come to the remedies proposed by wannabe pundits.

  • Reskill employees on digital technologies. For the last 4-5 years, IT companies have retrained their employees on S-M-A-C technologies that form the bedrock of digital transformation. Fact is many such retrained employees are on the bench. Problem is cloud software requires far less resources than onprem and custom-developed software, which have been the mainstay of the Indian IT industry for most of its 30 years existence. As I highlighted in my earlier blog post, IT services companies are seeing an 80% drop in billing for SAAS implementations. Furthermore, used to dealing with IT departments of customer companies until now, few Indian IT companies have grasped the change in mindset required to engage with the CMO organization, which is by far the largest driver of digital engagements. Top to bottom, there’s a surfeit of sensitivity about how to sell digital technologies. Therefore, reskilling more employees on digital technologies without addressing the other challenges will only worsen the problem.

  • Indian IT should look inward and focus on mobile broadband triggered explosion of market in India. Since the dawn of the Indian IT industry in the mid 1980s, there has always been a huge opportunity to provide IT services in India. But the industry achieved global scale only by going West. That’s because the West is where the money is for IT services. India gets 70% of software right for a fraction of IT spend of the West and goes from 70% to 95% right via blood, sweat and tears, extra pain willingly undertaken by users due to poor UX, and late working hours of staff without overtime pay – but without spending hard dollars. In contrast, companies in the West spend many times more money to get their software 100% right. (Companies in the West sometimes spend more to get IT wrong, but that’s a story for another day.) As a result, while there’s a lot of work available in India, there’s not a lot of money in the Indian IT services market, so Indian IT industry can’t earn big bucks by looking inward.

  • Form labor unions to protect employee interest. This is a horrible idea. If you’re above a certain age, you’d recall the number of industries virtually decimated by militant labor unions e.g. textiles. Extremely leftist in their thinking, Indian labor unions behaved more commie-like than even their counterparts in Russia and China. India has moved on from those days and a return to that era won’t help an industry that generates $150 billion in annual revenues largely because it has been free of labor unions.

These remedies are extremely simplistic and raise questions on whether their proponents have ever set foot inside an Indian IT company.

Going forward, if the number of layoffs increase and reach the 5% mark, would that spell doom for the industry?

I don’t think so.

Year after year, world-class IT companies – from the West and even Japan and China in the East – shed their non-performers. Typically known as “clearing the deadwood”, their annual retrenchments amount to 5-10% of staff strength. So far, it has been socially and politically difficult for Indian IT companies to do the same. The present market uncertainties have provided the Indian IT industry with the opportunity to carry out long-overdue house cleaning. While this will cause pain in the short-term to employees of the industry, the industry itself will emerge more competitive from the exercise. And, as Parag Naik points out in his email to the The Economic Times, eventually the good quality people who work in the industry will also thrive.

Does this mean the industry can be blasé about the future?

No. The Indian IT industry faces a looming crisis on the horizon from growing automation, digital challenges, H1B restrictions and Trumpism-driven Middle America outsourcing.

How can the industry avert this looming crisis? Based on my experience of working in the Indian IT industry for over two decades, I can think of the following imperatives:

  • Go up the value chain from project management to program management
  • Gear up to win large digital transformation deals
  • Help customers avoid building software systems from scratch.

More on these in a follow-on post. Watch this space.

(Spoiler alert: These imperatives will call for new capabilities that go well beyond coding, testing and other technical skills that have been the mainstay of the industry so far.)

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