With business slowdown, IT giants like TCS, Infosys face need to keep up with the times

The past few days have seen the worst Q2 performance by top IT giants TCS, Infosys, Mindtree, HCL, Wipro, and Tech Mahindra in a decade. While Infosys seems to have fared marginally better, TCS on the other hand has shown a mere one percent growth. When compared to TCS, Infosys may have momentum on its side, but there is no questioning the signs of aging and decay in the IT sector.

The $108-billion IT sector, which is believed to hire over 3.7 million people, now seems to be fighting a losing battle against newer digital technologies. The signs were clear from Thursday, when TCS reported a business that was virtually stalling, and Infosys slashed its full-year revenue for the second time.

It has become challenging for these giants to get clients to loosen their wallets. Andy Mukherjee, a Bloomberg columnist, says that four quarters before the collapse of the Lehman Brothers, Infosys had seen a revenue increase averaging at 29 percent in constant currency terms. And Accenture’s growth, he marks, was just half as high.

Andy, however, notes that Indian software companies’ outsized revenue growth is now a thing of the past. So what is the problem? There are several micro and macro factors that have contributed to the slowdown:

Being giants, were they less agile and adaptive to the changing environment around?

Over the past few months, leanness and agility have defined the game. A Livemint report indicates that together, TCS, Wipro, and Infosys account for 1.5 times more workers than Accenture. However, the revenue they generated was 40 percent lesser.

Also, these large employee bases aren’t exactly innovating. It is the world of small startups that creates innovations. If you look at the past two years, WhatsApp, acquired by Facebook for $19 billion, had over 55 full-time employees. Although the world is now all about automation and lean teams, the Indian IT industry seems unable to move past traditional modes of operations.

Not changing with the times and continuing to be risk-averse

Experts believe that the IT giants stuck to defending their legacy businesses that failed to create a mark in the new digital world. They simply turned a blind eye to faster growing technologies and methods like analytics, social media, mobile, and cloud.

A Huffington Post report notes that although automation has killed even low-skilled jobs in the global IT industry, Indian companies worked on as sleeping giants. Clients today are asking for new technologies that can reduce the number of people deployed onsite and want more accountability from IT.

Also, at the end of September, Infosys had a whopping Rs 35,640 crore in cash and despite increasing shareholder payouts, after Vishal Sikka took over as CEO, the pile isn’t shrinking. This isn’t a good thing because too much cash in the hands of the management leads to risk-averse thinking. They need to either invest in newer technologies or further roll out that cash pile to the shareholders.

On the other hand, their Western counterparts have adapted much quicker.

Bring in a shift in focus

While transformation has been the name of the game, at least for Infosys since Sikka took over, the company’s main challenge has been to implement design thinking. It is yet to move up its services from traditional IT services like application development, and maintenance. ADM accounts for 90 percent of its business. Platform-as-a-Service (PaaS) is a business that is still less than $100 million, forming just one percent of its total business.

Infosys’ strategy has been around creating platforms that could automate processes for clients. So automation took the form of understanding client business from within and then integrating technology that could prepare them towards a digital future.

Only Finacle, the core banking solution, is a globally successful business line, which, sources say, is a half-a-billion-dollar business. There is very little IP.

Analysts have long accused Infosys of integrating technology rather than understanding the business needs of the customer and using this knowledge to implement solutions. Now that’s what Sikka has sought to change in the company, targeting $2 billion from platforms and design thinking.

However, Sikka said in a press conference, “Organisations will have to prepare for a digital future and they will have to use technology skills that offer artificial intelligence and design thinking.

In conclusion

While there are macro factors like Brexit, weaker unrestricted spending, and growing pricing pressure, slowing growth in the financial services and banking sector might be cause of the slowdown as well. The Indian IT giants need to introspect and seek ways to survive the changing tide. They need to challenge conventional business models, invest in newer technologies, and possibly look at leaner models, all of which their global counterparts like IBM and Accenture have adopted.