This week I talked to Chandra MD of Cognizant about what he sees happening in the ITES sector in the near future. He listed three major ones and several minor ones. Here are the three major ones.
Non-linearity: The IT industry has been aiming to grow top line by 30% and operating margins by 20% for a long time. With wage inflation and pricing pressures this expectation is under threat. The way out of this has been labeled non-linear growth. Without this, any increase in top line has to be supported by a proportionate increase in number of employees. The trick is to increase the revenue per employee. Cognizant has been investing in its KM systems to deal with this problem. As the number of knowledge assets and people in the system increases, network effects will kick in and spur the non-linearity.
Orchestrated Ecosystem: The next wave of outsourcing growth will see a marked increase in the number of partners who will be part of the sales and delivery process. Major vendors will team up with lower cost or competency enhancing partners to deliver services. The manufacturing industry will provide the guidance and road map here. While this can be easily imitated, the differentiation will come from their ability to share and leverage knowledge with the same partners. In the case of Cognizant, their internal KM systems have been developed using APIs that can provide controlled access to the partner ecosystem. In fact, on large multi sourcing deals they can even share information with competitors using the same system.
Gray box sourcing: This is similar to the whole process sourcing that Ananth at TCS articulated. Companies are getting comfortable with a commodotized view of IT and willing to have a vendor take up the whole process. The Bharti IBM deal is an example here. Negotiating the whole process and pegging revenue to outcomes like revenue and quality of service would become more prevalent. While the entire process is with the vendor, customers can have dashboard based access to the services and can probe issues in a self-service mode. Cloud technologies have made the pay as you go and monitoring capabilities a viable option.