IT Services industry – time for empty talk is over !


Every day I read at least one article that talks about Indian IT companies planning to hire several thousand people locally in US , and multiple articles about digital transformation disrupting multiple industries. What is abundantly clear to me is that jobs and careers as we have known them will get disrupted in an unpleasant way and society will have to pay a big price to pay . 

Global IT services business was built on “your mess for less” philosophy, not on advisory and consulting type business . 

If you, the client,need to spend a million dollars to process invoices or make collections  ,then  I – the service provider – have a combination of cheaper labor ,infrastructure  scale and technology that lets me do it for cheaper . So I will do it for cheaper and give you a better deal while still keeping a healthy margin for myself . And then I will keep optimizing my process and technology so that I make better margins – some of which I will pass on to you too . Now that you love the model for invoice processing , I can also make this work for you in say maintaining your ERP system . I will just hire more people , and use the learning from the invoice process work and keep making my business better while you have a healthy cut on your costs too . 

The differentiation became one of price charged by the provider – and hence buyers just needed to compare rate cards for the most part to make a determination . The last couple of decades went along this way – with minor differences . There came a point where low price alone wasn’t differentiating enough – so some kind of price + value add was needed to keep this motion going . That came in the way of pricing for outcomes , rebadging employees , adding some freebies like proof of concept work , etc . 

What didn’t change was that success was still tied largely to headcount – how many people could the customer take off their books , and how many the provider could add . Even if the contracts were outcome based , the costs were mostly head count based . This model could adapt to slow changing technology – but not for massive shifts in technology . For example – when BPM came along a decade ago, a ten member team probably got shifted to an eight member team . But when AI becomes mainstream – with visual recognition , pattern matching and so on – we may only need 2 people to do that job , or perhaps none ! The current model is not built for that kind of disruption – and companies and people will both have a price to pay .
I look at “we will hire thousands of employees in US” as mostly (not solely) a PR exercise . While protectionism will very slightly delay the inevitable – the job losses in US and elsewhere won’t be because India and China have cheaper labor . It will be because automation will take over routine repeatable jobs , and there just won’t be enough people with the skills needed for the higher end jobs given we have not prepared as a society and as an industry for such a tipping point . 

These higher end jobs unfortunately cannot be done in near future in India ( not sure about other countries but can’t be that different ) because the quality of the mass produced engineers are not anywhere close to the levels needed for taking these jobs on scale .  Revamping the education system world wide should be priority one – and this can’t be done via formal education system alone . 

It will be a rather weird world ahead of us till we hit the next equilibrium point . Job losses will not be because there aren’t enough jobs that need to be filled  – it will be because we don’t have enough people with the new skills . 

Automation will light up the industry candle on both ends – clients will automate a lot of their work , and service providers will automate a lot of their work . This affects all levels of current services organization hierarchy . For the most part , I expect the fundamental services business model to change . Just a few examples in no particular order to make the point

1. Services companies became large and profitable by optimizing large resource pools – like a thousand ETL programmers to support a hundred  projects . Large SI companies historically did not need too many people with multiple skills – so it was quite possible to be a top class ETL programmer without ever needing data modeling skills for example . When the need changes to micro specialization by client , and smaller and shorter projects , it no longer makes it possible to optimize this way . So I expect the large service providers to be more of general contractors and the actual skills to be provided by individuals and smaller companies . Some very niche skills alone might get housed in these larger SIs – and the differentiation will mostly be IP based 

2. Neither clients nor providers will need a lot of managers purely for administrative reasons like reporting , aggregating etc . I do expect project management to become even more important though . 

3. When robots take some of the the jobs of humans – HR will need skills to integrate human machine interactions . While it might sound funny today , I do expect people with “robot recruitment expert” in future 🙂 . Finance will need to deal with the newtradeoffs between balance sheet and P&L when robotics become mainstream. Similarly for a service provider differentiating primarily on IP – the CFO will start watching balance sheet a whole lot more than she does today . 

4. For near term at least – countries like India are better off transitioning to products from services . But in the mid to long term , there won’t be much of a difference between what is a product and what is a service . Again , the skill requirements and business model changes are significant and fairly disruptive 

5. The scope of services provided will fundamentally change . As clients automate their plants and further increase the complexity of their supply chain and talent mix – how many services companies can help them on the front line ? The “manufacturing vertical” of most services firms today deal with mostly back office functionality of manufacturing companies – that won’t be very useful in just a couple of years 

6. Consultants , Advisors and buyers’ agents will need a lot more depth than the high level digital transformation power points, and rate card benchmarks to earn their keep . The level of knowledge needed to implement actual robotics in a company is not the same as “here are the 7 steps” on a power point chart you can impress a senior exec with today.

You get the idea – it’s not just the line employees who will get impacted , the entire length and breadth of the services ecosystem will get disrupted . And given the high spending power of this segment in the society and economy at large – the impact will be wide spread . In other words, the time to act has probably passed us already and we better start at least now . 

The first step to change is acknowledging we have a problem – so let’s get that over with and start the creative destruction and the rebuild . The onus is on each of us as individuals to reskill ourselves for the needs of tomorrow . And the onus is on each leader to join hands with each other to collectively define and implement the future of our industry – we cannot solve this one company at a time. This is not the time for empty promises and bravado filled PR  and small ring fenced teams that do “innovation” – we need meaningful action at scale . Let’s go !

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8 thoughts on “IT Services industry – time for empty talk is over !

  1. Pingback: Five Guys - a SAPPHIRENow assessment on day 2

  2. Hello, Still I do not understand the level of automation the current software’s and tools can provide in reality. Making the redundant table vanish and changing the speed of execution along with couple of intelligent algorithms wont change the way future runs. It is not just system automation which will work rather the automation of existing business processes that revamping of all the processes and their E2E scenarios, the in house knowledge that has been gather over the years and corresponding IP. It would be difficult to say that there will not be an impact of automation, but we need to understand what automation in reality is … ? is it changing the business scenario by running fewer steps at a quicker pace ? or with mobility and similar tools along with AI and finally the high level and low level work .. do you think the existing KPO / BPO centers which operate out of Asian countries do not require knowledge and domain expertise ? It looks the way you try to see the information.

    Thanks
    Surya.

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  4. As always, very well articulated Vijay. Its a level playing field again – The clients we serve are also looking for help to drive digital transformation but at the sametime keeping the IT spend economics more or less the same as cloud, automation etc shd bring the existing operational costs down. So those who see this is as a real opportunity (not building a simple mobile app and calling it a major digital program 🙂 ) will reskill their workforce, make shifts to their strategies early and probably thrive.. Some new service providers may emerge as the winners..

  5. Nice narrative, though I do not agree with automation being central theme driving future of IT industry. While Automation is still talk of the town, we still see slow adoption and lot of scepticism. While there is ‘forced automation’ which clients are forcing service providers to factor in, client themselves are not yet ready for the bitter pill. So, I believe, cost is still in play and always will.

    Agree on skills point. So far, we as in IT industry dint have motive to upskill and innovate. So, we ourselves are landed in rock and hard place. Some IT players will still continue to play lower end of V and do not see them disappearing soon.

    Innovation agenda will be driven by leading players – IBM, Accenture and leading IPPs, while rest of the IT industry will play catchup.

    I would rather put my bet on Blockchain , rather than Automation which will put IT industry in tight spot , if all its promises turn true.

    Nicely written. You made my weekend 🙂

  6. “the skill requirements and business model changes are significant and fairly disruptive” says it all. Low cost repetitive and cookie cutter skill sets are out. Adaptable application of skills combined with fast learning is in.

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