India’s IT service providers must rethink their digital transformation strategy

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Many Indian IT service providers (ITSPs) today will not be around in the next decade, at least not in the same shape and form, and industry consolidation is a distinct possibility in that time frame.

While this is a stark assessment, it is not alarmist. Many of them are facing significant challenges with their service models:

Dependence on labor arbitrage: This helped grow what was a small offshoring industry for Indian IT skills and labor into a $150 billion outsourcing industry today. But the headwinds are strong, and only the foolhardy would meet them straight on. For example, Indian business process outsourcers are feeling the impact of the contraction of US H-1B visas. In addition, the rate of local hires is still moving slowly, while changes in the employment visa regime are picking up pace, threatening to increase operational costs and shrink the margins for many of these providers.

Organizational culture as a key roadblock to digital transformation: Becoming a digital business is not about digitizing tools; it is about becoming a truly digital organization, with a concomitant shift in mindset. For some Indian ITSPs, the results tend to fall short: one-off initiatives in siloed units won’t have a big enterprise-wide impact. Senior management often lacks a complete view of how to set the right ambition, build the right elements for the transformation, and systematically embark on the transformation journey.

Revenue exposure to a single market: Though shareholders may disagree, Indian ITSPs must move away from their overreliance on single market tactics – e.g. the US – by diversifying into other regions such as Asia-Pacific, Africa, and Latin America. These markets offer exciting entry points for traditional ITSPs into new accounts and regions, particularly for work in digital transformation and cloud migration. Enterprises will also require “bread and butter” services, such as IT and business operations and service management.

Ovum believes that some Indian ITSPs must pivot from being just managers of IT services to becoming true customer-journey partners. This necessitates a shift away from being a digital version of an outsourcer to that of a value-creator.

ITSPs should focus on:

Joining up disparate parts of the customer journey: This involves taking a strategic look at how to shift from running uncoordinated efforts within siloes to launching an integrated operational-improvement program organized around customer journeys and internal journeys within the business. An outside-in customer perspective and an organizational cultural shift are requirements for success. Infosys, for example, uses its “AiKiDo” services framework to drive “design thinking” throughout the organization in the service of customers. This is a good move – in the longer term, it is an assured payoff.

Embracing deeper and broader skillsets: Indian ITSPs must invest in broader and deeper training for their employees, e.g., teaching employees about DevOps, big data analytics, and cloud services. PaaS, for instance, offers an area of potential growth for ITSPs, particularly with regards to lines of business looking for agility and speed with new services. Indian ITSPs should look at how they can build services for customers.

Reinforcing a robust digital ecosystem: Large Indian ITSPs understand this well, and this is an efficient way to build agility and speed in the digital era. HCL, for example, runs the complete digital and digital merchandizing (e-commerce platform) for Manchester United, but it also partners with non-ITSPs, such as Gigya (single sign-on provider) and Urban Airship (mobile wallet provider), to deliver a great digital customer experience for Manchester United website/e-commerce users. Smaller players should broaden their own ecosystem partnerships.

Written by Clement Teo, principal analyst at Ovum

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