Scary and exciting times for the industry, say IT leaders

According to McKinsey, 80% of incremental enterprise investment to be in digital technologies by 2020

Research firm McKinsey says 80 per cent of the incremental enterprise investment will be in digital technologies by 2020. Machines will also join the workforce.

The information technology sector is already seeing the start of the delinking of headcount and revenue growth. This will add fewer people to the sector. The sector, on track to be a $225-billion behemoth by 2020, will add a million people less for the $100 billion it adds.

“The annuity business will go down. We will see a 20 per cent decline in maintenance and business process outsourcing annuity. Sales and marketing will go up by 30 per cent and research-and-development investment will go up by 15 per cent. More important, 50 per cent of the talent will have to be re-skilled to be relevant,” said Noshir Kaka, managing director (MD), McKinsey.

T K Kurien, chief executive officer (CEO) of Wipro, agreed with Kaka. He said, “We are in the midst of a perfect storm. You have technology changing, consumer changing and clients changing, too. You need resources who have completely different skill sets.”

Many acknowledged that perhaps it is time for the sector to revisit its business model. Kurien said all our processes were optimised for scale, but how do we optimise for speed? “We need an organisation within the organisation to address this,” he said.

“The age of machine intelligence is here. It is so real that the largest media company in the world is fielding 65,000 different incidences not by labour arbitrage but by cognitive agents. The Shell Oil and Gas trading platform has moved from human-based to cognitive agents,” said Chetan Dube, president and CEO, IPsoft.

C P Gurnani, MD & CEO of Tech Mahindra, believes that 100 per cent of the skill force needs reskilling. “It is both scary and exciting times for the sector.”

McKinsey also stated that digital attackers were likely to capture 20-25 per cent of total enterprise revenues by 2015. Kaka said the financial and retail sectors had witnessed this shift.

The retail sector added an incremental revenue of $4 billion for 2012-13. The top-ten players added 1.2 billion but the top three added $6 billion. These included Amazon, CDW, and Newegg.com. In the banking sector, companies such as Paypal, Alibaba, Facebook and NTT Docomo have changed the way the payment sector works.

India’s third largest IT services company Wipro agreed to the need to shift the working model. “About a year-and-a-half back we decided that we have to get out and understand the technology space better because fundamentally we believe that the outsourcing models that we have today will not last forever. It’s tough to change. We believe that if we don’t do this for ourselves someone else will cannibalise us. We are today incumbents and defending our business. If we do not face this and just build walls, then it will crumble soon,” said Kurien.

This was one of the reasons for the company to set up a VC fund within the company so that employees within the organization also understand that not always one needs to build scale.

• By 2020, 80% of incremental revenue will come from digital tech
• 15-25% of traditional spend saved by going digital
• Services revenue on track to reach $225bn, but will add <1mn people for the next $100 bn
• 20% decline in maintenance and BPO annuity