It seems that the traditional outsourcing is almost to its death bed. The Indian story of IT outsourcing has almost lost its sheen. Earlier global IT service providers have helped clients realize cost saving and effective methods through various outsourcing channels like Applications, Infrastructure, Business Process and Offshore Product Development. Indian IT industry created a niche for itself in the outsourcing marketplace by pioneering Global delivery model and developing strong differentiators like the Process Maturity and cost arbitrage. Benefits of outsourcing is obvious but it appears that client dissatisfaction levels too are growing across a varied dimension. Be it quality of service, innovation, speed of response to business changes or cost savings. In a dynamic world like ours today the only constant is change.Indian IT industry has its inflection point attributed to the dot com bubble burst, 2008 financial meltdown, cloud computing technology innovations, mobility and "booming" Indian economy.
We often tend to look at life in a linear fashion, with the assumption that the past is the best indicator of the future and that the trend under observation will continue to grow (or fall). However, most trends in reality follow an S-Curve – with a slow and steady start, rapid growth, a slowdown, followed by a decline.
The IT industry of India can be classified to three phases.
- Wave 1, which we can trace to the 80s and 90s, clearly established that Indian IT professionals were competent and could be trusted to deliver world-class work. This was the staff augmentation era of the industry, largely serviced through onsite services.
- Wave 2, starting off in the mid-90s and currently at its peak, established India as an offshore programming destination. With labor arbitrage as the basic value proposition, Indian companies established large offshore development centers that had competent technical staff, mature CMM processes and world-class infrastructure. While the trigger for Wave 2 was the offshore initiatives by companies like GE, Motorola, Nortel etc., the Y2K bug gave it the necessary momentum. Although things slowed a bit after the dotcom bust, the shrinking IT budgets actually gave an impetus to large Fortune 500 companies to use offshore centers as a mainstream sourcing option.
- With rising salaries, the appreciating rupee and recessionary pressures in the US, it is difficult to see the Indian industry continuing to sustain a 40-50% growth rate in the labor arbitrage mode. Hence there is a genuine question whether Indian outsourcing is on the decline. This is the classic S-Curve in operation. This calls for the third wave or what is called the "Outsourcing 3.0" according to Kaushik Chatterjee from Wipro Technologies.
Outsourcing 3.0 or Wave 3.0– which is strategic, value-added and non-linear. Capitalizing on the large pool of technical talent available in India and the free availability of domain experts in the western world, Indian companies need to start making substantial investments in building intellectual property – not necessarily as packaged software, but also as frameworks, components, web services and the like. We need to move up to create solutions that have strategic impact and C-level visibility within client organizations. We need to own significant parts of the transformation initiative budgets and be equipped to convert our CMM advantages to predictable deliveries.
The the next wave would take Indian software services exports beyond the $100 billion mark! Far from being a death knell for Indian industry, we see the decline in Wave 2 work as a necessary precondition for the emergence of the Third Wave. The industry giants like Infosys, Wipro etc. have already taken the leap to the emerging cloud solutions and other technological attributions. The only question is the pace of leap required to sustain the Indian leadership over the prevailing threats.
- "Outsourcing 3.0: Road Ahead for the Indian IT Industry", Kaushik Chatterjee, ITSM 2o11, IPF