At the time of writing, we find the bulls and bears to be locked in an
intense battle of supremacy at stock markets across the globe. The ripples
haven't missed the Indian shores as we witness an increasingly bearish sentiment
with even IPOs failing to make the cut! Serious rumors of an impending recession
in the US and a resulting cut on IT spends by the companies there, is going to
impact the Indian economy on the whole and the ever so heavily export oriented
software industry in particular. The initial signs look ominous and panic
buttons seem to have been pressed, with reports of workforce retrenchment by TCS
and IBM, and an overall reduction in remuneration by IT companies. Ever since
the software industry evolved, companies have worked as a cheap offshoring
development center for the US. This was made even more lucrative due to the
favorable time difference between the two countries, which ensured that work
ensued non-stop 24-hrs a day. Quite obviously, the Indian software industry has
a majority of its clients in the US, who account for over 60% (Source: NASSCOM)
of their revenues. As compared to this, the UK accounts for 18% and continental
Europe, just 12%. So, you can very well imagine how severely an economic
recession in the US would affect bottomlines here. Let's check out some of the
numbers. The current fiscal has seen business growth of large software companies
falling behind targets. A major factor to have impacted the earnings during this
period is the appreciation of the rupee against the dollar, to the tune of 8.6%
as compared to just 1% during the same period in 2006. The other reason is the
slackness in demand arising out of the US, due to the slow economic growth
there; Q4 of 2007 saw the growth falling to 0.6% annualized yield as compared to
4.9% during the previous quarter.
Software companies have traditionally offered the best salaries across all
verticals. And this head forms almost 50% of their total revenues. But given the
current circumstances, this is going to be the first expenditure to be curbed.
TCS' aggregate wage bill has declined by about 4% during the first nine months
of the current fiscal, compared to the corresponding period in 2006-07.
Consequently, their wage share as part of total income fell from 43% to 33%.
Likewise, the growth rate of wage bill of Infosys fell from 54% to 23% and that
of HCL Technologies was down from 38% to 24%.
So, there would be cost pressure on the $40 billion IT export services
industry in the near future and there would be proactive steps taken to control
costs. During the budget announcements from large US enterprises, the IT
intensity (spends on IT as percentage of total revenue) is expected to go down.
And from whatever they order, clients would expect more bang for the buck!
Diversifying businesses
Retrenchment of employees isn't the only solution to tide over the crisis.
You need to tap alternate sources of revenue to stay close to the 30% growth
that the industry has witnessed y-o-y. Well, the top management of large
software companies feel they've diversified enough across other global markets
to ensure that the impact of a recession on their business is marginal. Most
companies have already increased their stakes in the European, ASEAN, African
and Latin American markets to cushion against any slackening in the US demand.
They might even think of increasing stakes in Japan, the third largest IT & ITeS
market in the world, that currently accounts for only 4 per cent of the total
exports from India.
We provide consultancy on everything; from software and hardware to planning and implementing the technological fixes, to providing technical support
What are the challenges in data management How do you ensure round-the-clock With rising Rupee, profits take a hit. How
Any plans to increase your share in the |
There's also the huge domestic market to be looked upon. TCS plans to
increase its domestic market revenues to $1 billion in the next couple of years
from the $500 million at present. And their strategy for achieving this would be
to offer a mix of services and solutions rather than focusing only on the
infrastructure part. The company is currently targeting BFSI, telecom,
manufacturing and government organizations. But there's a strong case for
increasing stakes in retail and infrastructure, sectors that are constantly
hogging the headlines.
IT spends as a percentage of revenue vary from 3.5% in manufacturing to 5-6%
in retail to 9.5% in BFSI. As the BFSI is the largest spender on IT, the
subprime and the mortgage crisis in the US has really hurt. These are the sector
specific business challenges that companies have to watch out for. The companies
working for the BFSI sector in the US are likely to face the heat in the near
future.
Internet advertising has a huge potential. Last year 8% of the total advertising spend across the globe was on Internet with a viewership of 20%
What are the new business opportunities How do you ensure seamless data access to |
There could yet be two different sides to the coin. On one hand, the pressure
on the US companies might lead to more offshoring and so the large IT companies
should manage an 18-20% revenue growth in dollar terms; while on the other, a
longer than expected recession could have a severe impact on the revenues of IT
companies, particularly the small and mid-size ones, who don't have specialized
offerings or are heavily exposed to a particular sector. Don't be surprised if
this segment gets the hardest hit in 2008.
What we discussed were the new economic challenges before companies and what
they could actually do to alleviate those. Apart from these, there are still
some of the decade old challenges that companies can have a fresh look at.
Motivating and retaining a highly skilled and young workforce, sprucing up
technology to accommodate a phenomenal growth rate year-on-year, communications
challenges and IT infrastructure consolidation are some of those. Being a
knowledge driven and knowledge intensive industry, the stellar software industry
is playing a pioneering role unto itself with nobody to look up to for help. It
has performed incredibly over the past two decades and the next decade promises
to be no different. So, rather than calling these as challenges let's tone them
down as hurdles.
Respecting the various legal requirements around the world for data retention is a challenge. As these requirements are complex, some judgment has to be used
Being a knowledge intensive industry, you What How do you address |
Nurturing Your Employees
The skill-intensive nature of the industry means that companies spend
several months training manpower for future projects and there's a typical idle
period before an employee becomes profitable. In the last few years, the IT
industry has grown at a rate of around 30% a year. Such is the nature of the
industry that you typically require employees with diverse skills to cover the
different verticals. The recruitment of skilled manpower has never been an easy
task and keeping them on board is even harder. In addition, you have competition
within the same industry with employees switching over to competition. And now
with the pressure on margins, the need to increase revenues per employee and the
focus on high-end work, only highlights the need to handle the human resource
with care.
Infosys spends over $140 million a year in training employees at its Mysore
campus. The challenge large companies face is in converting the raw talent into
skilled professionals that the industry needs. Some of the issues that can be
sorted out to meet this goal have been listed as under:
1. Ensuring anytime, anywhere communication amongst employees: When we
talk of collaboration and communication amongst employees sitting across
different locations, the first thing that crosses the mind is knowledge sharing.
Most organizations have set up portals help employees share information on HR
and admin issues, finance, project specs and social causes such as observing
anniversaries, people's welfare and so on. With broadband internet availability
across all major cities, employees find this to be a very convenient platform to
come together and collaborate.
2. Training in diverse skills: Monetary benefits apart, IT employees
are very keen on picking up new skills to enhance their profile. This is also
one of the main reasons why they switchover (and not just higher salaries!).
Interestingly, if they are provided the opportunity to pick up different skills
within the same organization, they are more than keen on continuing with the
same organization. Sapient has made communicating with employees and focusing on
their career path, an HR priority. Badly hit by a high attrition in Q3 2006,
they've since targeted mapping employees' individual career goals with that of
the company. HR guys across the industry try to accommodate diverse training
programs for employees during their tenure. For eg, an employee who is working
on infrastructure management might be interested in learning the latest in Java
technologies and vice versa. So, the large software companies, with a plethora
of projects on different platforms, can find out a way to keep employees
motivated on this count.
3. Developing new managers: The software industry is fairly young,
both in terms of resources as well as ideas. So, don't expect legacy management
techniques to be effective here. This is typically an industry of individuals
where employees need more of guidance than direction. Hence, when it comes to
driving large projects, companies often find it difficult to find a unifying
force that would gel the different talent together. So, developing managers out
of developers is an interesting challenge that companies face.
4. Combating stress: As is typical of any knowledge industry, stress
is the number one factor that impedes employee progress and affects their
ability to work continuously with the same focus. Being an industry with a very
young workforce, thankfully they've worked around this beautifully and achieved
resounding success at work. However, this just might be one of the sleeping
monsters waiting to rear its head during the next decade or so, when the
industry starts maturing. More so, when there's already talk in the air about
deriving more out of less. Not that companies are not aware of this or are not
doing anything to reduce stress from their employees' work. Around 50% of the
companies have adopted flexible timings for their IT workforce while another 20%
take teams for regular outings and offer recreational activities like indoor
games, gyms, coffee houses, etc. Yet another 25% use innovative ideas such as
removing monotony from work, nominating employees for conferences, keeping them
motivated through trainings and encouraging employees to use recreational and
sports facilities available on campus. Some have even gone to the extent of
offering work from home as an option to women folk, however, they are wary of
going all out on offering this to a majority of workforce as they are not sure
about the flip side that it may bring along.
5. Reaching out to prospective employees: The heady mix of money and
technology catapults many a youngster from the smaller towns and cities to
metros in search of opportunities. However, job satisfaction apart, family
compulsions sometimes get the better of people, who are left with no option but
to hunt for jobs nearer to their native places. This is a problem being faced by
large companies with huge manpower. So, you not only witness companies such as
Infosys, Wipro, TCS, etc having offices across all over India but also multiple
offices within metro regions. Sapient has offices both in Gurgaon and Noida, to
save employees from commuting hassles.
Nucleus recognizes the contributions made not only by the employees but also by their families in bringing success to the organization
You have a young workforce. What steps What technologies have you deployed for
|
Ensuring state-of-art connectivity across branches
Not that scaling up businesses by tapping potential markets across the globe
doesn't come with its own set of challenges. The companies need more bandwidth
over their WAN links, greater amount of scalability, and with scattered IT
skills, they need to ensure a high-rate of mobility for their workforce. Keeping
these concerns in mind, most organizations have moved over from the legacy TDM-based
networks to MPLS-based networks. The migration to MPLS technology provides
benefits such as cost savings, any-to-any communication, QoS and traffic
isolation amongst multiple clients. The technology enables secure Virtual
Private Networks (VPN) to be built and allows scalability that will make it
possible to offer assured growth to its customers without having to make
significant investments. Rather than setting up and managing individual
point-to-point circuits between each office using pair of Leased Lines, MPLS VPN
customers need to provide only one connection from their office router to a
service provider edge router. An MPLS network in addition to improving traffic
speed, makes it easy to manage a network for quality of service (QoS). A company
can also put together a virtual ODC concept on this network to enable usage of
skills across different locations in India. This would allow the workforce from
one location to work from other location using the same network resources. This
helps in addressing the high lead times of resource fulfillment, high training
costs and a high turn around time.
Consolidating IT infrastructure
With IT industry growing at 30% during the past decade, the need for
resources of all kind-human as well as infrastructure is huge. But scaling up
infrastructure, both in terms of real estate and physical equipment, comes at a
huge premium. The companies need to have a look at the latest technologies to
extract the maximum out of their current resources. Virtualization is currently
very hot in the field of infrastructure consolidation and is being increasingly
used by software companies to optimize the utilization rates of their current
infrastructure. You can use virtualization techniques for: servers, storage,
networks, applications and desktops. Server virtualization is far more impactful
than the others and according to vast majority of CIOs, improves server
utilization by upto 40%. It allows one to load multiple OSes and apps on a
single hardware server, eliminating the need to purchase separate servers for
different tasks. Lesser hardware also reduces power consumption in the data
center, and thereby reduces cooling requirements. Moreover, it saves time while
rolling out new applications and creating their replicas. Consolidating their IT
infrastructure is one of the ways through which companies can do more with less.
This would not only lead to savings on physical space required to house all the
equipment but also lead to savings on costs of procurement, deployment and
maintenance. This is easier said than done as it could run for several years and
for old companies, end-of-life servers, inefficient backup/recovery mechanisms
to provide business continuity, bandwidth support for users due to the wide
range of services offered and the heterogeneous systems could be some of the
challenges.