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IT sector takes to non-linear growth

Source : BUSINESS_STANDARD
Last Updated: Thu, Feb 14, 2013 22:10 hrs
HCL Technologies plans capex of $230 million for FY12

There are growing signs in the Indian information technology (IT) and business process outsourcing (BPO) sector of revenue growth delinking from a proportionate rise in hiring, a sign of its maturing.

The $100-billion export-driven sector has been vocal on the need to move up the value chain with increased automation, offering services bundled with software products and platforms. It has been fairly successful in its non-linearity drive over the past couple of years. According to Nasscom, the industry body, over the past three years, the sector achieved annual revenue growth of 14 per cent, with just nine per cent yearly rise in headcount, on average.

"This indicates we have started seeing the impact of non-linear revenues, meaning the model is no more just linear in terms of headcount increase," said Krishnakumar Natarajan, managing director and chief executive officer of MindTree, also vice-chairman of Nasscom.

Adding: "We are often asked about the hiring outlook for the next year. I think, increasingly some of those metrics are not exactly relevant to portray the health of the industry because more and more of revenues which are coming are led by intellectual property, driven by solutions we have built."

Though the IT/BPO services sector is still not out of an uncertain global economic environment, the endeavour to make it somehow recession-proof started after the Lehman Brothers collapse in 2008, hitting global economic growth. With constraint in demand, the sector increasingly started talking about new delivery models such as outcome-based pricing, risk-reward and fixed price models, as an alternative to the traditional time and material (per-hour payment for the services it offers to clients) model. It also started identifying new technology trends such as cloud, mobility, social media, big data and analytics that were expected to sweep the world, adopting many.

This is showing early signs of success. Take Tata Consultancy Services, the country's biggest IT services company. Almost all its engagements in the $500-mn insurance division are organised on outcome-based pricing. Infosys is creating intellectual property-driven software products and platforms through a dedicated practice. Other industry leaders such as HCL Technologies, Cognizant and Wipro are also active in their non-linear initiatives.

According to N Chandrasekaran, MD & CEO of TCS, the non-linear model would also require more people, through not in the huge numbers as companies used to hire. "We need people to build the products, platforms, solutions. But the productivity (revenue generation) will be much higher," he said.

The BPO sector, heavily dependent on people, has also started offering products and platforms to harness some of the new opportunities. Take the case of [24]7 (the former 24/7 Customer), which started as a BPO company in 2000. About a year before, it started building customer experience enhancement products and platforms, harnessing the power of big data and analytics as add-on businesses. The Bangalore-based company, funded by Sequoia Capital and Ram Shriram (Sherpalo Ventures) has been growing at 20-30 per cent annually in the past three years, while keeping its headcount constant at around 10,000.

"This year, too, while maintaining the same headcount, we are expecting a 30 per cent increase in our revenue. This is because of our focus on creation of intellectual properties, products and platforms," said Shanmugam Nagarajan, co-founder & chief people officer of [24]7. In 2012-13, the company is expected to cross $210 mn in revenue.

"I think that indicates very clearly that the IT/BPO industry is moving up the value chain in India and becoming more profitable and employing more knowledge workers," said Kumar Parakala, head of management consulting and IT advisory for KPMG in Europe, Middle East and Africa.

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