Battling the IT demons

With the slowdown in the IT industry, the top 5 show the strategies that companies should and should-not adopt. And show how to survive the tie.

Many many eons ago, according to Bhagavad Purana, there lived an Asura king, Hiranyakashyap. In his quest to immortality, he underwent severe penances and in the bargain attained quite a few celestial powers that almost granted him perpetual life. The list of boons Hiranyakashyap got was pretty impressive, neither man nor beast could kill him; he could not be killed by daylight or at night-time, within his home or outside it, on the ground or in the sky. Using these powers, he usurped Indra’s throne and went on a complete rampage. Finally, it was Vishnu who had to take an avatar to finally rid earth of the demon king.

But what has the tale of Hiranyakashyap got to do with it Indian IT? “Quite much,” according to Anand Mahindra, MD of Mahindra & Mahindra, who used the tale to illustrate the challenges faced by the IT industry at the moment. Challenges like US slowdown, adverse currency changes, rapidly escalating costs in both salaries and infrastructure and inadequate talent pools below the tier 1 and 2 institutions. “The IT industry today faces challenges every bit as complex as those Hiranyakashyap posed for Vishnu,” he stated.

For the Indian IT industry reeling under severe strain, the top groups are the beacon of light and hope. In some ways, they are much like the Narsimha avatar taken by Vishnu that display a stratagem to tackle this Hiranyakashyap. And the groups that succeeded in the past year are the ones that were not coping with the crisis on hand but all the time keeping their eye on the horizon, exploring newer avenues and even turning returning to their roots so as to say.

Made for India!

One look at the growth pattern of the different groups and its becomes obvious that the ones that managed to post robust growth were the ones that were in some ways looking at the booming domestic market. For long, these top companies have adhered and trotted the ‘Made in India’ philosophy; but the need of the hour is to relook at the export oriented mindset. Take the instance of HCL, the group clocked 32% growth over last year, the highest compared to any other group in the top five, which includes Tata, Wipro, Infosys, and HP. And the reason is faring evident, both its constituent companies, namely, HCLT and HCLI tapped the opportunity in India and went out for them. In fact, of the group’s revenues, domestic revenues stood at a healthy 42%, while exports stood at 58%.

Infosys is on the other end of the spectrum. The growth for the posterboy of Indian IT dropped from 45% to 20%, the slowest among all the top groups in our list. And unlike in the case of HCL, the reason for Infosys’ dismal performance was a lack of ‘Indian’ strategy. The revenues from domestic operations for Infosys remained almost flat in a year, thus the company’s percentage of total group revenue declined.

Of the other groups, HP India continued to ride the Indian wave and even Wipro managed to tap the Indian market, with its domestic business providing a cushion from the rather stale export growth. Meanwhile, TCS made a grand foray into the domestic BPO industry, which contributed around Rs. 500 crore to its topline.

Thus, it goes without saying that the groups need to court domestic enterprises and companies with the same enthusiasm and zeal that they showered on MNCs. Made for India is turning out to be a big story, almost as big as Made in India.

Build or Buy?

Indian (companies and even individuals) are often blamed for the lack of killer instinct. Thus, most of the Indian enterprises seem fairly smug at posting 30% y-o-y growth, preferring organic growth to inorganic one. Indian IT companies have steered clear of large acquisition targeted at just scaling up and continues with strategic ones to add skills and/or getting into geographies, like TCS’ acquisition of Comicron (Latin America) or FNS (banking). This is all good, when the going is good. But in turbulent times, there needs to be a change of way things are done.

Looking at the various groups, it becomes obvious that they are playing it safe. There were no major acquisitions in the past year (when it would have actually cheaper considering the strong Rupee) by any groups, except for Wipro that acquired US based Infocrossing for $600 million, the company’s biggest till date. Among the others, HCLT acquired US based Capital Stream for $40 million. While, there were no significant ones from Tatas (IT group) or Infosys.

Tatas is a baffling case. While the corporate group has gone ahead and done some brave and revolutionary M&As overseas, like the acquisition of Corus by Tata Steel or Jaguar by Tata Motors, TCS has remained fairly quiet on the M&A front. In fact the number two company in the group, Tata Technologies has grown immensely on the basis of the $130 million acquisition of Incat, two years back. The case with Infosys has been fairly the same, except for rumors about its interest in picking up Capgemini, nothing much happened on the M&A space.

Among the group, Wipro is the only one that has gone ahead and acquired companies in different geographies or for skillsets, terming it as the “string of pearls” strategy. The jury is yet to be out on what is the best way, the slow and steady or the brave and racy. Though, it goes without saying that groups need to realize that no risks no gains.

Building synergies

Another stereotype that often dogs Indians; is the inability to function in a team. While there are many great individual performance, there is no cohesive team play. That was also much the case through the years for these groups as well. Individual companies, for instance TCS and Tata Technologies, HCLI and HCLT, Wipro Tech and Wipro Peripherals, Infosys and Progeon (now Infosys BPO) often followed strategies based on their individual outlook. There was little or no collaboration and at times, these companies were competing with each other for the same account or in the same space. So, TCS was working with Ferrari and Tata Tech was working with Williams.

But in the year gone by, there has been a realization that team play is the need of the hour. And the groups have been working fastidiously at working out the synergies. Tata’s deserve a special mention for the very same. In the Tata group, TCS enjoys an enviable position, the moon among the stars. Considering the vast disparity of its service offering, there were times when the other group companies were in competing with TCS, for instance Tata Interactive Services (TIS) in the e-learning space, or Tata Technologies in engineering space or even Tata Infotech. This clash caused a lot of heartburn for the smaller companies, as they could not really battle it out with the big brother.

But there has been a consistent change, TCS went ahead and acquired companies that were in the same space, namely CMC and Tata Infotech. And worked out an agreement of collaboration with the rest. The results are already showing, Tata Technologies and TCS bid and won a joint contract for Arvind Meritor. Even the smaller niche players, like TIS, too had their synergistic contributions within the group. TIS worked on a significant project with Tata Technologies during the year. And this synergy was evident not only in the IT group, but also beyond it. Surely Bombay House (Tata Group’s HQ) was driving the whole collaborative initiative.

Even, Infosys tired its hand at working out the synergies among the few group companies. It came out with Infosys’ One Infy offering, that combines services and BPO. In fact BPO has been the saving grace for the group, with Infosys BPO doing quite well, growing by 43.5% last year. The BPO success is based on its ability to leverage Infosys’ strengths and customer relationships fairly effectively. But if Infosys BPO was a success, Infosys Consulting was a let down.

If Infosys BPO carried its good performance from the previous year to FY 08, Infosys Consulting, started in 2004 with a few ex-Deloitte consultants, carried its struggle to break even from the previous year to FY 08. Infosys Consulting, still maintains its separate website, has a very different employee composition than Infosys and tries to sell itself as a serious strategy consulting firm. There pros and cons of both integration and segregation, Infosys seems to be still evaluating the best among the two.

Meanwhile, HCL has ensured that there is some sort of synergy reflected in the company’s branding. Thus, HCLI and HCLT are working together on the go-to market approach.

Battling the Hiranyakashyap

If analysts are to believed; the gloom that has descended on the Indian IT industry will linger for a while. Thus, Mahindra’s Hiranyakashyap would continue to torment and trouble and the industry can learn from the strategies adopted by the top 5. The message is pure and simple, innovate and domesticate. And the ones that are able to do so successfully will find themselves at the top of the data tables and the ones that miss out will have only themselves to blame. In the tough times that we live, there is little mercy for failures. Hopefully the groups (and the IT industry at large) would learn fairly quickly. The battle (with the IT Hiranyakashyap) might be hard, but it is certainly not an impossible one.

(This article of mine was recently published in the Dataquest Magazine. Found it relevant enough to post considering the current economic conundrum)

One thought on “Battling the IT demons

  1. addressing the Indian market *and* building synergies – sounds like an opportunity to do systems integration with green in mind, to me 🙂

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