Nitin Seth

We live in interesting times. Global economic outlook is uncertain and the velocity of change is higher than ever before. Business environment is challenging but is not just about doom & gloom; it offers many new opportunities as well. New markets are becoming significant, technology is continuing to evolve at a dazzling pace, and there is lot of opportunity for innovation. However, it is clear that there is likely to be much churning. Organizations who step up and capture the opportunities can become world beaters. Equally, those who fail to adapt can see surprising decline. This presents interesting challenges for Indian IT/BPO companies who have enjoyed a wonderful growth run for the past 15+ years. The current business environment requires them to raise their game. This presents a great opportunity for HR to be influential catalysts for the change that companies will inevitably need to go through.

On July 25, 2012 we had a CEO panel discussion on the above themes to kick-off the NASSCOM HR Summit in Chennai. The panel members included Ganesh Lakshminarayanan (Dell), R Chandrasekaran (Cognizant) and me. I had the pleasure of moderating this panel discussion. In this note, I have tried to synthesize key insights from the discussion. We tried to answer the following three sets of questions in the panel discussion:

• What are perspectives on the global business outlook? What are key global forces to consider?
• What are implications for the Indian IT/BPO industry?  What are likely to be the drivers of growth?  What changes do Indian IT/BPO companies need to make in their business models to capture the new opportunities?
• How does the HR agenda of IT/BPO companies need to evolve?

Global Business Outlook

There are many big global forces at play that are creating both significant opportunities and difficult challenges for organizations. There are four that are particularly noteworthy:

1. Global economic crisis. Eurozone crisis and massive level of debt across markets are two grave problems to which there are no easy answers. Eurozone seems to be in an unsustainable position. Long-term scenarios are extreme – either moving to tighter fiscal and political union or perhaps just breaking it up. Either of these scenarios will cause massive costs and disruption. Similarly, reducing the level of debt requires a painful deleveraging process that will take years. With increasing globalization, no market is now insulated from the impact of these events
2. Hyper-competition. There is increased competition and over-supply across most product markets. This is creating continuing downward pressures on pricing and changing the market economics significantly. Moreover, the business cycles are getting crunched. New product markets are getting created and then getting saturated at much faster pace than before
3. Shift of wealth from West to East. Purchasing power in developing countries like China, India, Brazil and many others is continuing to grow. This is creating great opportunities for growth. Equally, growth in the traditional developed markets is becoming more challenging especially as their population pyramid continues to age
4. Technology megatrends. Technology is continuing to evolve at a dazzling pace and changing the world around us significantly. There are four technology driven megatrends that are especially noteworthy – Big Data, Cloud, Social Networks and Mobile Devices. More than 4 billion people now use cell phones. If Facebook users constituted a country, it would be the world’s third largest, behind China and India. Data is now measured in Peta Bytes not Tera Bytes. Clearly, these are very significant changes that will revolutionize both consumer behaviour and business models (see blog post, “Technology Megatrends – Is the Indian IT/BPO industry headed for a disruption?” for more insights on this topic).

Outlook for the Indian IT/BPO industry

Fundamentals of the Indian IT/BPO industry continue to be strong. It is not immune to the macroeconomic challenges but there is still potential for significant growth. Customers are grappling with significant challenges – structural changes in their industry, new markets, cost pressures, and the disruptive impact of technology. They can’t solve the challenges themselves and need external help. This presents an opportunity for the Indian IT/BPO companies to leverage their relationships and step up in their role as a trusted partner for their clients. However, Indian IT/BPO companies will need to evolve their game in line with the changing environment and customer needs. The following 5 directions are likely to be important for them to drive growth:

1. Thought leadership. Expand value proposition from cost arbitrage to complete business solutions. This involves having a more strategic and senior engagement with the customers. It requires changing focus from being just an execution partner to proactively providing solutions that could include products and business expertise. This will likely require very different skill-sets for client leadership and engagement than before
2. Products and IP. Need to change mindsets and capabilities from executing on back-office oriented services to investing in products and IP creation. This will require them to put more emphasis on branding, engaging with the end customer, and enhancing expertise in the core business areas. Products and IP creation is an attractive opportunity for newer companies who have the advantage of being nimble and focused. However, this is too important an opportunity for the larger companies to miss, and they might need to develop new organization models to make progress on this front
3. Globally integrated delivery. Customers are becoming more international in their approach and they are looking for global solutions. This might imply a move from consolidated, scale delivery centres largely based in India to more globally distributed delivery models. In addition, move from execution to solution-centric approaches will require closer proximity with the customers. The larger Indian IT/BPO companies already have global presence. The smaller ones will need to invest in this. The larger ones might also need to better integrate their global capabilities to ensure seamless global delivery for their clients.
4. New markets. Go beyond traditional geographic markets and sectors and align with the new centres of economic activity. In particular, Indian IT/BPO companies need to build or strengthen presence in the following markets:
   • Emerging markets like China, Russia and Brazil
   • Newer verticals that are becoming relevant. Some of the traditional focus areas like Financial Services might see decline. New areas like Public Sector and Utilities might become more relevant
5. New capabilities. Need to build rapidly evolve delivery capabilities and business models in line with the Technology Megatrends. Mobile Technologies, Cloud Computing/SAAS and Analytics will continue to become more important. Indian IT/BPO industry ecosystem is at a point of maturity where the Indian companies should aspire to be not just followers but innovators and leaders in leveraging these megatrends. Those who are able to successfully lead in these new areas will have the opportunity to build new businesses and leapfrog established majors

Implications for the HR agenda

HR has the opportunity to play an important catalyst role in stepping up Indian IT/BPO companies to compete and win in the new global environment. However, to do so they will need to evolve significantly. Operating in a constant high growth environment is very different from competing in the current complex environment. When you are growing, lot of your sins are easily pardoned. The current environment is not an easy ride for everybody. Those who don’t adapt and step up might get swept away. This is a serious call for action for HR and it will need to step up its game significantly. HR not only needs to help organizations evolve capabilities and processes but also its core DNA and culture. This will require re-shaping the role HR plays as part of the leadership team and how it engages with the organization. There are at least 6 directions that HR leaders need to consider:

1. Going global. Customers are global; companies also have to become global. HR has to not only help build capabilities globally, they also have to ensure that culture and mindsets also become more global. This is a complex challenge and will take time to get to the right balance. One of the key starting points in evolving the company culture could be to bring more international representation in the management team coupled with geographically dispersing the existing leadership
2. Customer centric organization. There is a need to provide more complex, integrated business solutions for clients. This will require breaking silos that exist in most scale-oriented delivery organizations and ensure that the best capabilities across the organization can be brought together for clients. HR needs to help evolve organization structures from functional to more customer-centric. In addition, they need to put in processes that break the silos and enable higher levels of cross-functional collaboration. Finally and most importantly, they need to help build an organization culture that places the client’s interests above internal organizational interests
3. New generation of leaders. There is a dire need to develop new generation of leaders. Expectations of leaders are changing rapidly from good delivery leaders to entrepreneurial, creative business leaders. This requires not just developing the leadership pipeline accordingly but in many cases even renewing first and second lines of management. Ability to develop this new generation of leaders is perhaps the most important success factor for Indian IT/BPO companies both providers and global in-house centres. HR needs to help identify budding leaders across levels and provide mentoring & stretch opportunities to develop them fully
4. Unleash innovation. Innovation is more important than ever before. Growth is likely to come from innovation and not just pursuing established markets and business models. Moreover, there is both an opportunity and need for Indian IT/BPO companies to evolve from being followers to leaders. HR has to help reshape the organization DNA to unleash a culture of innovation. In particular, they should nurture young talent as the source of innovation. In addition, they need to ensure that organization structures and incentives are aligned to encourage innovation.
5. Strategic cost management. HR needs to help drive down costs – not in a knee jerk way but in a structured, strategic way. To manage people costs, they need to manage both the entry level costs and the pyramid. Towards this, they need to continuously drive innovation in the people model – by identifying newer sources of talent and bringing in newer profiles.  This might require higher investment in learning & development, but will likely pay off many times over with benefits in cost management and lower attrition. In addition, there is need to drive rigorous performance management processes to ensure that pyramid is well balanced. This is going to become especially important for organizations that are moving from rapid growth to a more mature phase
6. Talent creation. Need to continue investing in developing talent pipeline, which continues to be a major pain point for the industry.
   • Despite the relative maturity of the Indian IT/BPO industry, only a small fraction of the educated youth pool in India is ready or engaged in this industry. There is need to partner with state governments and academic institutions to broaden the talent pool significantly. Adopting local colleges, shaping their curriculum, and helping build faculty and student skills could be a helpful effort in this direction.
   • In addition, there is a need to identify new skill pools required to capitalize on the new business opportunities and invest accordingly. The new skills required will be different (and of a higher order and more specialized) than the traditional skills. For example, there is need to expand skill sets that are currently back-office oriented to more marketing and core business knowledge centric. Moreover, there is a big shortfall in availability of talent in specialized analytics, which is likely to be a significant growth driver for future. Therefore, we need to aim for the skills that will be required in the future, not just the current requirements.

**********

Indian IT/BPO industry is poised at an interesting threshold. The business environment is challenging, velocity of change is very high, but it offers many opportunities as well. Indian IT/BPO companies need to evolve their game in line with the changing market and customer expectations. If they are successful, the majors could strengthen their global leadership and equally many new, world-class companies could emerge from India. HR has the opportunity to play an important catalyst role helping the companies prepare for the future, not only by building new capabilities and processes but also reshaping the organization DNA and culture. For this, they need to step up and evolve their role and positioning. This is a stretch yet achievable challenge for HR!!