IT Services Industry is Headed for Shakedown Street

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The precipitous rise in the adoption of digital technologies has pushed the information technology (IT) services industry to yet another important inflection point. As automation increasingly makes its impact in the back offices of today’s enterprises and in the front pockets and front seats of daily life, the way we live and work is changing more rapidly than ever before.

Cloud computing is converting IT infrastructure and standardized applications to the “as-a-service” utility model of the power grid, and companies are turning more and more to social media, mobile applications and data analytics to transform the way they do business.

These trends and developments are having a profound impact on the traditional IT services industry—an industry that has often largely depended—until now—on leveraging offshore talent and cost arbitrage to support the infrastructure and applications of large global enterprises. But this is changing.

Advances in software are already allowing companies to automate much of what humans have been doing: handling business processes, managing IT infrastructure, delivering upgrades, and taking on the time-consuming and repetitive tasks of configuring and monitoring hybrid cloud environments. 

Enterprises that want to reinvent the customer experience—as is the expectation today—will do so by implementing mobility solutions, leveraging digital marketing and brand-building strategies, capturing customer feedback, analyzing social media trends, and implementing analytics solutions for deeper business insights. Companies that will lead the way will apply design-thinking, creativity in solving issues, and best-of-breed tools and solutions.

Essentially, companies will have to go all in on digital. There’s no room for half-hearted participants. And, to do so, successful enterprises will commit considerable investment toward building capabilities, tools and solutions that touch their customers and enable new lines of revenue.

This is where IT services providers need to sit up and take notice. Yes, the shift is still just gaining steam and customer awareness and maturity is still quite low, but the time is now for service providers to establish themselves as true partners that can offer the right business knowledge combined with the capability to offer the right digital technologies. This calls for a proactive stance—a vastly different way of doing business for service providers accustomed to taking order.

Successful service providers will take on the responsibility of delivering outcomes by sharing investment risk and reward on top of implementing a solution or providing trained talent. Those that act quickly and wisely will see new rates of adoption by existing customers and growth from new customers.

Though the size of the pie will grow—and the budgets will shift increasingly from traditional IT maintenance services to emerging areas and digital—the number of players wanting a piece of that pie will also grow. And competition will change since the players will now include niche digital solution companies, large internet companies and product providers.

History proves that when such a radical shift occurs in an industry, not all players survive. Some lack the vision or drive to embrace change at the required speed. Some miscalculate the gravity of the situation or the significance of their decisions.

Over the next three years, the IT services industry will experience a serious shakedown. The new winners will garner a disproportionate share of growth and profitability, but it’s hardly the end of the road for the services industry. It’s simply another bend to navigate in this new landscape built on the promise of so many emerging technologies.

The change raises a pertinent question: what does the future hold for a country like India, which has been by far the largest supplier of talent and services? The adoption of automation and digital technologies is unlikely to diminish the strength of India’s position in the industry. But the number of employees required to deliver the future revenue will slip as the revenue per employee rises significantly.

Employees at the bottom of the pyramid and, to a certain extent, employees at the middle of the pyramid will face the challenge of moving up the food chain. Though history has shown that policy barriers may hold back economic and technological shifts, in the end, they are unstoppable. 

(About the author:  Dinesh Goel is  Partner & India Head at ISG, Information Services Group)

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