I.T. Sector Consolidation, The Next Big Leap!
The dust had hardly settled over the reports of Mindtree’s founders spurning the advances of their corporate suitor Larsen & Toubro when the news broke of a happier ‘ownership succession’ in another mid-tier Indian firm, NIIT Technologies. Barings Private Equity Asia, having acquired Hexaware earlier, is all set to take majority ownership of NIIT Tech and will probably look at cost rationalisation through a merger of the entities at some point in the future. The inevitable questions have begun to surface – is the bell tolling for the mid-tier segment of the information technology industry? Will the new flight to scale result in a U.S.-like situation with only the giants, global as well as local, jostling for a competitive position in the new world of technology, led by relentless digital transformation?
To put this question into perspective, there is a need to understand how the game of digital transformation is being played out and how the post-digital world of DARQ (Digital Distributed Ledgers and Block Chains, Artificial Intelligence, Mixed Reality, and Quantum Computing) will define the technology landscape of global corporates and impact the fortunes of IT service providers. Organisations, who have successfully voyaged on the digital seas have shown that the earlier industry analyst recommendations of “two-speed IT” and chief digital officers consigning the IT directors to the ignominy of managing legacy systems were, largely, signs of misplaced panic.
In virtually every industry domain, heritage systems have been refreshed with mobile and cloud extensions, deep investments have been made in business process reengineering and predictive and prescriptive analytics.
These embrace new customer journeys and capitalise on new technology pushes from machine and deep learning, deep tech startups, and massive computing and data transmission power.
What Clients Expect Today
What major client organisations are increasingly demanding from their service providers is a deep understanding of their own customer, employee and partner journeys and compelling capabilities in user experience design, consumer behavior and brand management. Leading organisations in all business domains are also expecting their partners to help build an innovation ecosystem for them. They see it as important as they progress through the various stages of digital success to build a discipline of constantly tracking new technologies and ideas that have relevance for the firm.
One of the most successful Indian companies in the financial services space has a tracker on developments not just in Silicon Valley and Bengaluru but also other digital hot spots like Tel Aviv, Singapore and London and is willing to offer a 'proof of concept' opportunity to young firms who benefit from the opportunity and add value to the thinking of the firm as it constantly seeks to gain competitive advantage. And who would do the identification of startups, new ideas and new opportunities? Their service providers of course!
Beyond The Big Boys
When a service provider is expected to go beyond traditional technology savvy to understanding the multiple touch points with every stakeholder of the enterprise, brand level storytelling and managing the interactions with all eco-system partners, it is easy to conclude that the game of supporting, enabling and in many cases leading digital transformation can be played only by those companies (read IBM, Accenture, TCS, Cognizant and Infosys) who have the ability to invest deeply in business domains and expand their comfort zones to completely new skill sets. Nothing could be further from the truth!
The consolidation that one would look forward to is that it is not just scale but investment in scope and differentiation that will differentiate industry winners of tomorrow from the also-rans.
A multi-billion-dollar organisation can undoubtedly have the deep pockets to invest in multiple domains but a focused half-billion-dollar firm with end-to-end capabilities to serve a chosen domain can also compete and succeed in the future market. And even the hundred-million-dollar firms with a penchant for building multi-stakeholder digital platforms can deliver value to increasingly savvy customers who will choose their own platform generation and deployment approach to stay relevant in their industry.
What is needed is a new vision and the patience to back it with commitment and money. Quite easy then for Private equity to back a new strategy, help scale the smaller firms three to four times and sell them to a large strategic investor.
Expect a number of deals like the APAX-led Patni-iGATE-Capgemini success story to emerge as the consolidation play accelerates.
Renovation Inside The House
A key and essential commitment area for every service provider firm is the investment in skills and culture building. New capabilities like those described here will need investments in continuous learning that goes beyond the reskilling and upskilling from souped-up e-learning portals that are often touted in the IT sector. Any firm with an eye on the future will have to deploy personalised and adaptive learning digital platforms that enable career planning, upgrading of skills, mentoring and community participation on an ongoing basis.
This means not just general awareness-building but the development of true digital champions transcending roles and hierarchical positions that spread the buzz of digital through the organisation. Moving learning to digital platforms, enabling experimentation with new digital technologies and bringing high-quality digital experiences to the workplace are all essential aspects of this transformation that service providers can and must undertake to thrive in the new world.
With the model shifting to being more on-site and near-shore than largely off-shore and cost pressures building up as better talent becomes an imperative for full life cycle digital partnerships, revenue pressures, as well as cost escalations, will have to be watched carefully for all players. The world of information technology has never been more exciting, for customers and participants. It will need a sharp ear to the ground and an eagle eye to spot the shifts as they occur and pick the winners of the future. Be prepared for surprises!
Ganesh Natarajan is Chairman of 5F World and co-founder of Kalzoom Advisors and the Center for AI and Advanced Analytics.
The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.