IT & ITES SECTOR REPORT

IT INDUSTRY ORIGIN

In 1974 the industry was begun by Bombay-based conglomerates which entered the business by supplying global IT firms located overseas with programmers.

Mid Eighties : Mainframe-based programming and manufacturer-specific operating systems and languages gave way to workstation-based programming and standard operating systems and high-level languages. These changes caused the Indian software industry to shift from supplying programmers to supplying software programs.

Following telecommunications policy reforms in 1999, this opened new opportunities for domestic firms. In 2000, reforms in foreign ownership rules, intellectual property protection and venture capital policy induced foreign venture capital entry. The traditional software services industry, dominated by large local firms, has subsequently competed with firms with superior domain skills and access to finance. In consequence, the industry as a whole is seeing new leadership, more product development and higher value-addition.

Types of software by usage:

1. System-level software: programs that manage the internal operations of the computer, such as operating system software, driver software, virus scan software and utilities.

2. Tools software: programs that help applications to work better, such as database management software.

3. Applications: programs that deliver solutions to the end-user, such as word processing software and financial accounting software.

Software is either (1) written for general use and replicated in its original form across many users, or, (2) written for a specific user. The former is termed a software product or package. It may be shrink-wrapped and transported physically or over the Internet. The latter is termed custom software. System-level software is the most complex as it manages the interfaces with both hardware and higher level software; applications software is the least complex.

Nowadays, all system level software are products. The more varied an end-user’ needs from another end-user, the more likely is the software to be customized. Since variations in needs appear most at the stage of applications, most customized software is applications software.

Definitions:

Consulting refers to IT strategy, system conceptualization, architecture and design. It is comprised of Nasscom numbers for IS consulting and network consulting and integration.

Applications Development refers to creating the applications programs. It is comprised on Nasscom numbers for custom applications development.

Systems integration: Hardware and software deployment and support refers to making the software and hardware components compatible and interoperable. It is comprised of

Nasscom numbers for (1) Hardware Deployment and Support and (2) Software Deployment and Support.

Systems integration: Applications, tools and O/S refers to integration of the software components (both products and custom software) in a software project.

Managed services refers to services such as managing applications either onsite or remotely over the Web, managing networks, etc. It is comprised of Nasscom numbers for applications management, IS outsourcing, network and desktop outsourcing, applications service providers and system infrastructure service providers.

WHY IT SERVICES ?

Table 3 : Client-Vendor grid during 1970-79.

Source : Author’s compilation, based on steinmullur, 1996.

ISV – Independent Service Vendors

Columns A to E above are not intended to describe mutually exclusive choices. For example, a firm might purchase system level software products while developing its own applications. The columns are arranged by sequentially dominant work-types over the decade, starting with the shift from external data processing and managed services (Column A) to in-house hardware at the start of the decade. Initially, firms developed their own software (B). As the 1970s progressed, hardware and software became more complex making in-house software development and management more difficult. This led to the outsourcing of system integration (C) and then to the sourcing of system level and applications products (D). The move to outsourcing customized

applications (E) was due to the failure of industry specific products to meet the needs of the more sophisticated users, particularly the large banks

U-W standard – Unix based work station

Table 4 : Software Services Industry new work-type and cause : US and India

WHAT IS ITES ?

Outsourcing of processes that can be enabled with information technology Delivered from/to remote areas through the telecom and Internet medium Transfer of ownership and management of the process from the customer to the service provider Eg., functions like finance, HR (human resource), administration, healthcare, telecommunication, engineering etc.,

HOW ITES HAS EVOLVED ?

Phase I (1996-2000) started with GE in 1997

Pioneers - focus on building scale. Absence of vendors with exhibited capabilities. Preference of captive model

Phase II (2000-2003)

Early adopters - sharpen outsourcing strategy. Rise of 3PSP (Third Party Service Providers)

Phase III (2003-2008E)

Cautious followers - embracing outsourcing unconditionally. Higher degree of consolidation and shakeout

Indian ITES industry is moving up the value chain – Finance and Accounts, Customer Interaction,HR Admin (89% of revenue in 2004-05) to BFSI, Pharma and Life Sciences, Legal Services and Business Process management

Factors impacting competitiveness of ITES industry

A new breed of high-end knowledge based BPO called Knowledge Process Outsourcing is emerging. This comprises of vendors providing higher-end research and analytic based services - in traditional service lines as well as new business areas.

Areas with significant latent potential for KPO include healthcare -pharmaceuticals and biotechnology, legal support - intellectual property research, design and development for automotive and aerospace industries, and animation and graphics in the entertainment sector.

F&A (Finance and Accounting) outsourcing is emerging as one of the fastest growing BPO segments. While earlier, the majority of F&A outsourcing deals were focused on transaction processing, now customers want BPO solutions providers to manage almost the entire business process.

IT & ITES FACTS AT A GLANCE

The Indian IT & ITES sector revenues are slated to reach $48 billion in FY07. Below are some highlights -Key Highlights of the IT-ITES sector performance

IT Industry-Sector-wise break-up

Employment figures-Software and Services sector

*Figures do not include employees in the hardware sector

SOME FACTS

The contribution to the Indian GDP in FY07 from this sector will increase to 5.4% from this year’s 4.8%
Announced investments in this sector will touch US$ 10 billion over the next few years.
About 70% of the 6,500 companies registered with about 47 STPs located across the country are small and medium enterprises (turnover under Rs 10 crore).
Every Rupee spent by the Indian IT/ITeS sector translates into a total output of about Rs 2
IT-ITES employs over 1.6 million people directly and provides indirect employment to another 6 million
Domestic market growing at over 21%

TYPES OF PLAYERS

Category
No. of players
Share of India's total IT/BPO export revenues
Performance

IT Services




Tier I Players
3-4
45% of IT Services
4-5% of BPO
Revenues greater than USD 1 billion

Tier II IT Players
7-10
25% of IT Services
4-5% of BPO
Revenues USD 100 million-USD 1 billion

Offshore operations of Global IT majors
20-30
10-15% of IT Services
10-15% of BPO
Revenues USD 10 million-USD 500 million

Pure play BPO providers
40-50
20% of BPO
Revenues USD 10 million-USD 200 million (Excluding top provider with USD 500 million)

Captive BPO units
150
50% of BPO
Revenues USD 25 million-USD 150 million (top 10 units)

Emerging players
>3000
10-15% of IT Services
5% of BPO
Revenues less than USD 100 million (IT) Revenues less than USD 10 million (BPO)

TOP 15 BPO PLAYERS 2006

TOP 20 IT SOFTWARE & SERVICE EXPORTERSE FORM INDA (2005-06) (excludes ITES-BPO)

1. Tata Consultancy Services Ltd.

2. Infosys Technologies Ltd.

3. Wipro Technologies Ltd.

4. Satyam Computer Services Ltd.

5. HCL Technologies Ltd.

6. Patni Computer Systems Ltd.

7. I-flex Solutions Ltd.

8. Tech Mahindra Ltd. (formely Mahindra-British Telecom Ltd.)

9. Perot Systems TSI (I) LTD.

10. L&T Infotech Ltd.

11. Polaris Software Lab Ltd.

12. Hexaware Technologies Ltd.

13. Mastek Ltd.

14. Mphasis BFL Ltd.

15. Siemens Information Systems Ltd.

16. Genpact

17. I-Gate Global Solutions Ltd.

18. Flextronics Software Systems Ltd. (Standalone for FSS)

19. NIIT Technologies Ltd.

20. Covansys India Ltd.

Had they been ranked based on their India revenues, companies such as Cognizant, Accenture, IBM and HP would have been placed amongst the Top 10 of this list and companies such as Kanbay, Syntel and Intelligroup would have been amongst the Top 20.

TALENT SOURCE ISSUES

The industry presently employees 1.6 million people and is constantly expanding. Though India has a large labor pool, company heads say the education system isn’t giving people the skills they need. And there’s a lack of finishing schools to train graduates—a big concern for tech firms since they hire a majority of their employees straight out of college..

2006 Estimates - 3 million graduates & post-graduates. 10% of these are post graduates in Arts, Science and Commerce. Engineering Graduates and Diplomates are another 7% each. 17% are Science graduates, 19% are Commerce Graduates and 40% are Arts graduates.

NASSCOM has proposed the setting up of a chain of finishing schools for IT professionals to make them more employable with a simple 3-4 months of honing of technical skills and imparting soft skill training, helping bridge the manpower supply-demand gap by at least 30-40%. It has been proposed that finishing schools be set up by the IITs and National Institutes of Technology

The NAC (NASSCOM Assessment of Competence nationally rolled out in November 2006, after a successful pilot, is being taken to a number of states in 2007.A comprehensive skill assessment and certification program for entry-level talent and executives (low-middle level management) is underway to detect talent fitment. Opportunity for us to position Managerial assessment tools.

National Skills Registry (NSR): A centralized database of all employees of the IT services and BPO companies in India. This database contains third party verified personal, qualification and career information of IT professionals. May be we can get skill qualification criteria developed with the.

NASSCOM has been working with the academia across the country under its IT Workforce development initiative to encourage and facilitate greater industry interaction; it has signed MoUs with UGC and AICTE to take forward these initiatives. Here lies a specific Dale Carnegie opportunity for building strategic alliance.

NASSCOM has suggested the concept of experimenting with adapting the Special Economic Zone concept (deregulation and removal of restrictions) for education, and create Special Education Zones. The long term steps that are needed include much higher government investment in education, major education reform and better compensation and research grants for teachers/researchers. Opportunity for DCT at university level to train teachers.

TALENT TRANSORMATION ISSUES

In a recent news report it was stated that the training tab for the IT industry could run to $1.5-2 billion in FY07. Of this Infosys alone plans on spending $140 million, while Wipro and Satyam will spend $100 million and $70 million respectively.

College/university education does not ensure that graduates are immediately employable. It is felt that every engineering graduate requires about 14-16 weeks of training at a cost of approx US$5000 per person.

In the SME IT sector there is almost zero investment in training leading to attrition. Overall there is a crucial need for business specific training for middle management and executive coaching for senior management.

TALENT MANAGEMENT ISSUES

A. IT SERVICES COMPANIES – Most IT services companies have organisations structured around some key functions (Not organisational hierarchy). At the Customer interface level , is the Business Development group usually stationed overseas. For product companies, a customer service group backed up by technical support team interfaces with customers for online problem resolution and maintenance support. For product development companies project teams are consituted based on a particular domain. Such teams engage and dis-engage after completion of projects. Most technical professionals prefer roles that add to their expansion in domain knowledge and expertise in a given area. The product development groups usually have people with domain expertise (with little or minimal IT knowledge) intergrated to a software team with minimal industry knowledge.

The top management have a challenge to step up innovation and create a knowledge environment so that business opportunities can be captured . Besides buildng upon domain knowledge these companies depend a lot on IT infrastructure and Facilities management including transportation.

The people management challenges are :-

Ø Communication skills of the front levels technical groups

Ø Presentation skills and selling skills for BD groups and project team leaders

Ø Project management skills – People side of project management skills

Ø Cross culture business skills

Ø Managing change – for companies growing by organic growth

Ø Management skills – Performance Management, people management

Ø Leadership skills – Innovation and people engagement

B. ITES COMPANIES - Most ITES companies commenced operations as Captive operations. From the second phase many companies went ahead as third part service providers. The typical organisation providing BPO service has a hierarchial structure. At the front end of delivery are the Customer Service Associates. They are supported by team leaders , who report into managers. These managers report to senior managers, who report into a Dy GM/GM responsible for a Process. Likewise, the operations can have more than one process and business with more than one company. Therefore information flows are restricted , and geographical barriers created with utmost care. Like IT Service companies, creating a knowledgeable and competent workforce is key to success. This sector is characteristic of a young workforce and a high percentage of working women. Consequently, the management levels are also very young. Most supervisors and managers are less than 25 years old

The people management challenges are :-

Ø Communication skills – usually taken care of by voice and accent training

Ø Internal personal skills

Ø Supervisory skills of the team leads

Ø Performance Management and people development skills

Ø Coaching and training skills om the floor

Ø Problem solving and cricis management skills

Ø At senior and Top management the need for managerial talent development is a key

challenge.

The common issues involve training and development to build domain knowledge and managerial talent. Challenge of high attrition rates and cost of training and retraining are other significant problems.

WHERE LIES OUR OPPORTUNITY ?

The SME sector contributes to nearly 60% of revenues. They do not have centers of learning excellence as the tier 1 companies have such as TCS, INFOSYS, WIPRO , IBM, ACCENURE have. This sector can be tapped by partnering with STPI’s for open programs.The SME companies not only pay 20% more salaries to their employees but also become source of ready talent to the tier 1.

PROVIDING a first level supervisory management program for the BPO segment on a time spaced basis especially for the domestic and third party service providers can yield significant business . Here again , integration with our Assessment tool will offer a complete solution.

IMPORTANT CONTACT INFORMATION

KEY CONTACTS AT NASSCOM