The Indian IT sector needs to graduate to the next level of product and solution development and marketing and not rest on past laurels

The Indian IT sector is continuing to be the country’s fastest growing segment, even in these times of economic uncertainty. The revenues from the IT software and services exports have increased from Rs. 36,500 crore in 2001-02 to Rs 47,500 crore during 2002-03. This means a growth rate of around 26 per cent.

Existing model - problems galore! - It would seem that the future of our IT exports is extremely rosy. However, a closer look will reveal that this amazing growth rate in revenues has come at the expense of profits. Many of the small IT companies are operating with wafer-thin profit margins; some are in the red already. Even the big players are finding it a challenge to improve the operating margins. It has become a great challenge for these companies to improve profitability to satisfy the shareholders, and, at the same time, retain the most valuable assets in any services business – the skilled employees.

Re-evaluating the model - It is in this context that we should take a hard look at the service-centric strategy that served Indian IT companies so well during the last decade. A service-centric strategy was essential during the last decade, since this was low risk, and ensured a steady flow of revenue for the Indian companies. Most of the present Indian IT behemoths were just feeling their way around during that time, and they needed a low-risk high-growth business model. Now, most of these companies have attained the critical mass in terms of number of employees. They have sufficiently large cash reserves as well.

The present scenario of high revenue growth without adequate bottom-line does not augur well for the industry in the long run. Hence, the leaders of the industry need to take some bold initiatives in order to sustain our country’s lead in IT services exports.

Products/Solutions - Since the leading IT companies of India have adequate cash reserves, it is time for them to start investing in areas that will boost their bottom-line growth. Most of the large IT companies in India have been serving clients in certain domains repeatedly, and now is the time to leverage the expertise gained through those engagements. A product-centric strategy should be used as a growth strategy for IT companies which have reached a critical mass (the exception is of course, the start-up that is fortunate enough to conceive and bring to life that once-in-a-blue-moon-product which is truly excellent so that it will sell by itself). There is a great deal of space available here - while India’s software-services exports totaled $7.9 billion last year, the nation claims just 0.2 percent of the $180 billion global market for software products.

Focus on clients’ needs - The big companies, which have already gained extensive knowledge about their clients’ processes, are well poised to make the transition into solutions-based or product-based companies. This is because they have acquired sufficient domain knowledge, and can also develop industry-specific solutions jointly with their clients. However, they need to re-orient their mindset. At present, they concentrate on providing the solutions requested by the client. From this stage, they need to graduate to a stage where they can analyze the problem-domain itself, and come up with novel solutions and products that will solve the clients’ problems in a cost-effective manner.

Some of the top players in the industry have already adopted the solution-centric strategy, and are working in this direction.

Joint product development - Whenever possible, our IT companies should partner with their clients while trying to develop solutions and products for the industry. This will help them to reduce the risk involved in bringing out new products. More importantly, involving the customer during the development of solutions will help in receiving iterative feedback during the development stage itself.

Excellence in marketing and branding - One of the major reasons for Indian companies failing in the software products market is because of their weakness in marketing and branding. We need to realize that marketing and branding are essential for selling products. As of now, if we look at the marketing and sales departments of our IT companies, we can find that most of them have a very heavy concentration of employees of Indian origin. Sales skills needed for inking services deals are not the same needed for starting, following up and closing deals involving products or solutions. For this, we need to have marketing and sales personnel who understand the prospective market and its dynamics thoroughly. If we do not have people with the necessary skills, we need to bring in talented sales personnel from other places. Branding is also an area where there is a lot of scope for improvement. The present level of branding efforts will never be enough for us to gain a significant portion of the global software products/solutions market. We need to bring specialist personnel into this area as well.

Focused R&D - Indian companies should formulate a long-term strategy that will determine the direction in which they want to go in the long run. All research and development that is undertaken within these companies should be in alignment with this top-level strategic direction. This will help in having focus during the research and analysis process.

To sum up, it is definitely possible for the Indian IT industry to make its mark in the products and solutions market, but there needs to be a great deal of internal business process re-orientation for that to happen.

The author has provided this article for businessgyan in his individual capacity. Please send your feedback to This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

Issue BG31 Oct03

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