How Indian IT companies must change

Leading Indian IT companies have to go truly global in terms of their operations and culture. The example of the best Japanese companies like Sony and Toyota is useful. They have not just taken manufacturing capacity all over the world but also sought to adopt a truly global mindset.

Toyota's Lexus car is an example. Toyota was already a global company with widespread acceptance of its products by the time it introduced the Lexus to take on the European domination at the high quality end of the car market.

Yet it chose to distance Lexus from associations with the Toyota or the Japan brand. The India brand has come a long way since the mid-nineties when Titan tried to launch itself as a global brand and had to work against the disadvantage of its Indian antecedents.

But still, global success is reserved only for global companies, which have factories (development centres) all over the world and where non-Indian managers are plentiful and do not perceive a glass ceiling above them.

Within the US, Indian IT companies have to do more. They have to become good American citizens, adopt local causes and support charities generously.

Further, they have to change their way of doing business. They have to take conscious and visible steps to save American jobs. The perception of Indian companies that once they win an order, they take out (offshore) whatever work they can and bring in Indian technicians to handle most of what remains, has to change. They have to retrain and reskill at the client so as to try and ensure that as many of the existing workers can be retained as possible.

In trying to become global companies, the acquisition route has to be followed with earnestness. The aim has to be to get a US front office and a face, take on jobs as American companies and then execute them as much as possible within the US by existing US workers of the taken over companies.

This can be the strategy to counter US software vendors who field jobs as American companies and then get increasingly large amounts of it executed offshore.

There is an implicit change in the business model in this. The cost arbitrage, offshoring to take advantage of the wage differential, has to become less and less important.

The need to go up the value chain, acquire domain specialisations, offer consulting services to tackle business issues and not technical solutions to address only the client's IT needs, has been stressed for some time now.

Leading Indian IT service vendors are actively in the process of acquiring consulting skills so as to offer end- to- end solutions that capture greater value. But the winners in this game will be those who can run faster.

An obvious way to acquire consulting skills quickly is to acquire consulting companies -- middle, small or even big -- and then absorb them within the parent structure. This is a learning process with pitfalls and those who come to grips with the inevitability of making and successfully working acquisitions faster will turn out to be the winners.

Going up the value chain has two other manifestations. One is to go in for developing new technologies. If Indian companies are to become globally respected entities then they must aspire for at least a thin slice of the thought leadership of the global IT fraternity.

There has till now not been much sign of this. If leading Indian companies persist too long with their offshored delivery model whose emphasis is on managing scale and operational margins without any technological attributes, then the image of India as the home of the world's IT sweatshops will persist.

A concomitant to developing technology is growth of leading centres of learning with strong doctoral programmes, which are equal to the best in the world. These centres have to be supported by the industry and also be able to lead it, indicating to it what are tomorrow's new frontiers.

In short, India has to sprout its own Stanford if it aspires to a global IT status. And the point is that the IITs are not  Stanfords. Their doctoral programme was poor until recently and it is only lately that collaborative research and better pay for research workers is raising the quality of work.

The other way of going up the value chain is to get into products. The nature of the products business model is such that if you don't go bust you will be singing your way to the bank.

That means, says the received wisdom, only those with deep pockets will be able to bear the financial risk that a foray into products entails. But the big players in Indian software are not interested. Their theme is: services is services, product is products, the twain shall never meet. This is because the two businesses require different mindsets. When did you last hear of the consultancy practice of Microsoft?

All this may indeed be so but then we may at some future date look back and realise that the first chapter of the history of Indian software was written by services companies and the subsequent chapter was written by product companies.

One myth that has already been blown, turning received wisdom on its head, is that you have to be big to survive in products. There are enough of small successful product companies to establish this new proposition.

As one looks at the future of the industry, what comes foremost to mind is the need for it to reinvent itself. Playing the cost arbitrage while delivering quality has won the game till now.

Beyond the need to innovate to do what is being done better and better, is the need to do altogether new things. If this need to develop a new business model and secure a presence in technology and products is paramount, then the villain of the piece seems to be the quarterly results.

Ever since the technology bubble burst and IT stocks took a tumble, the best players seem to have devoted almost their entire energies to shoring up the bottom line. This has till now been done by dragging ahead the top line, causing the game to remain a volume play.

For Indian IT to script a new and more exciting chapter, its leaders will have to have a new vision in the first place and then tell shareholders: lock up your investments for two years and then find out what they are worth.

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