Vineet Nayar's outlook for Indian IT Services
Vineet Nayar is something of a legend in the Indian IT space. He took HCL, a primarily second rung IT Services company and made it one of the stars of the space today—I wrote about the company recently here and some time ago in Business Standard newspaper here.
In that article I described how Nayar realized the huge opportunity in renewal deals and took giants like IBM head on in trying to win them, allowing for new verticals like infrastructure services (which he guided the current CEO Anant Gupta in building).
Consequently, HCL's stock price has returned 12.24 times its price five years ago versus 6.28 for TCS, a 1.4 for Infosys and 2.64 for Wipro.
So, it's always worth listening when Nayar has something to say, especially when it concerns the future of IT Services—an industry that is experiencing rapid commoditization, increasing competition from other countries as well as products such as cloud computing that in many cases has reduced the dependence on heavily customized solutions that these companies have excelled at. In other words, IT services are going through an existential crisis of sorts (some more than others) with no ready answers in sight.
Here's what Nayar thinks is the problem with the current IT Services set up vis a vis an interview with Mint
"The ability for us to service that transformative need of the customer is going to be the next generation of growth... Nothing is going to happen with the current services portfolio; they will keep growing only because there are enough inefficient people and enough ineffective people. But if you really want to continue to be relevant for the customer... then I would struggle to say that Indian IT really has not figured out what is their answer to the customer wanting to transform themselves into a digital corporation. So therefore, it’s a threat and an opportunity."
How then will transformation occur?:
The trick Nayar says is to stay relevant to customers in the future which is different from being focused on Margins and Revenues which is the way everyone looks at IT Service companies today and how they look at themselves
Nayar thinks that the answer to how a transformation towards relevance will occur is related to changing organizational structures, where utilization today is linked to the ratio of onsite to offshore and so on. The only way to get out of this rut, he says, is to de-link yourself from this kind of thinking and arrangement and structure something that is outside of what the company currently does.
Of course, to do this, one has to undertake risk—to focus on finding the new while mining the old.
Nayar says: "Today we are happy where we are as an industry. That quotient of unhappiness which drives aspiration, drives appetite, relevance and risk-taking abilities has gone down. And unfortunately, smaller companies are also not coming up. So even if the larger companies lack the ability to take risks, lack the appetite for re-inventing themselves, at least smaller companies should come up and disrupt. That is also not happening, which is amazing to me."
This is all great stuff, theoretically. However, Infosys famously tried some of the things that Nayar is talking about (a new structure, making long-term bets at the risk of short term margins etc., and was roundly panned for not producing results quickly enough which just shows you that there are no easy answers or solutions to the evolution of IT Services businesses.