Brexit worries for IT

Indian software firms must innovate to surge ahead

The Indian software industry is facing a stack of fairly stout challenges that are forcing it to evolve at a breakneck speed. The latest is the fallout of Brexit, which has not spared even a robust market leader such as Infosys. To begin with, it foresees losing work worth $50 million secured earlier from a Royal Bank of Scotland deal, leading to the shifting of 3,000 employees to other clients' work. The British electorate's decision to quit the European Union will have many consequences, not the least of them being not knowing precisely what they are. What is clear is that the opportunity in Britain will diminish even as its economy slows down.

If, as a part of this, there is an exit of global financial leaders from London, then there will be a disruption in BFSI (banking, financial services and insurance) billing out of London. This may well be compensated by business gain elsewhere, but not before some disruption has taken place - markets do not like even a single quarterly dip. What will not be compensated is the ease of doing business in and out of London, which Indians, with their knowledge of English (the software business is English speaking) and cultural association of the past, had often chosen as the base for their European business. Last year, Britain contributed 20 per cent of India's software exports.

The challenges from Brexit come at a time when the global scenario is daunting. Global information technology spending is likely to remain flat in the current calendar year, according to Gartner, after going down 5.5 per cent last year (2015). Within this, spending on software is likely to go up 5.3 per cent in the current year. But, the catch is that everyone will not benefit. The focus will be on digital, internet of things and algorithm businesses. The key issue is: Are Indian firms increasing their traction in these areas? Nasscom, the industry association, is still going by its forecast of a revenue growth of 10-12 per cent in the current financial year, but two leading companies - Infosys and Cognizant - have revised their guidance downwards for the current year.

The challenge for Indian software is clear. A good part of its bread and butter business - writing code and maintaining software systems - is being automated, reducing revenue streams and work for lower level employees. New business opportunities emerging relate to helping customers migrate to the net or the cloud, and enable them to take their entire business digital. A corollary to this is the decline of maintaining enterprise software systems uniquely designed for individual customers on location. In the process, customising, installing and maintaining enterprise software go out of the window, as do the steady revenue streams associated with these. Once migration to cloud is completed, helping customers mind their applications on the cloud is a much less time and effort-consuming exercise with lower revenue streams.

It is not as if with most of the world's IT space moving to the cloud and virtually all of businesses going digital, there will be less work for IT companies. On the contrary, IT is becoming more central to doing business and with it the role of chief technology officials in companies. But to take advantage of this, IT companies will have to reinvent themselves. Routine work will give way more and more to innovation-centric effort and the intellectual capital at the command of an IT company will be its critical differentiator.