Indian IT can turn crisis into opportunity
India’s IT services industry has been on a roll in recent years. Whether it’s revenue, net profit, net headcount, development, customer list, new service portfolio, or any other measure of growth, it’s been a remarkable time for the industry.
But with the resurgence of recession fears, IT services companies, especially small and medium-sized businesses, are finding themselves in a bind. While top economists, investment bankers and CEOs remain divided on the prospect, timing and depth of a recession, companies would be better off modeling likely scenarios based on past experience with downturns.
Yet the debatable question is: can one instinctively extrapolate past learnings and apply them to today’s context given the massive changes that have taken place in the meantime?
Digital technologies are redefining business, operational and financial models. Investments in transformation programs are no longer entirely discretionary. Also, the in-house centers of global companies have grown to over 1 million professionals in India. This could redefine what is done in-house and what is outsourced to third-party vendors.
Even in this new environment, whether it’s a mild recession or a prolonged economic downturn, how companies manage their key stakeholders – customers, employees, partners and investors – would determine whether was a crisis they capitalized on or simply squandered.
Based on our experience tracking and navigating several downturns over the past 25 years, including the dotcom meltdown of 2001 and the financial meltdown of 2008, here is our 10-point recommendation.
10 point agenda
First, watch out for stalled or slowed decision-making that could hamper new or ongoing projects and discretionary technology spending.
Second, build a list of strategic customers — by logo and industry — and do in-depth industry analysis to anticipate potential pressure points. For example, reading consumer spending to gauge the health of the retail sector, assess trends in individual segments such as supermarkets, grocery stores, luxury goods, discount and convenience retailers to look at beyond the contradictory picture presented by the profits of the retail sector in the United States. Similarly, study the early signs of the US housing decline caused by the sharp rise in mortgage rates and house prices to consider their cascading impact on related industries. It would be essential for Indian IT services companies to assess their exposure to these vulnerable sectors and find ways to protect price integrity.
Third, customer partners must walk customer hallways every day. The pace of change in customer decision-making can lead to a variety of outcomes: vendor consolidation, opening new programs to niche vendors, moving on-site work offshore, price negotiation, and more. Unless customer partners “sense” what is happening in real time, companies could lose existing or additional business. If companies have the wherewithal to proactively advise customers on their potential choices for streamlining costs while improving efficiency and effectiveness, they need to get ahead and start doing it now.
Fourth, review strategic customers for telltale signs of budget freezes in business units and recalibrate hiring plans. For customers, this is usually the first line of defense to protect their internal development teams. At the same time, in many cases, companies that only do staff augmentation work would come under scrutiny as customers would like to limit their recourse.
Fifth, track and assess the impact of the hiring freeze that is beginning to be felt on FANG vendors, as well as technology start-ups in the United States. As this trend begins to make its way through the tech ecosystem globally, it may be essential for Indian IT services companies, especially small and medium-sized players, to pause and take stock of the pace and quality of hiring and also to tilt the entire organization. compensation towards higher variable compensation linked to individual and company performance.
Sixth, never throw the contract document to the client for any discrepancies in scope, payment terms, etc. Businesses could lose that customer for good. And given that client CXOs are highly connected, the collateral damage could be even greater. Focus on the spirit of the relationship and be as flexible as possible. The more empathetic companies are, the more evangelical customers they gain.
Seventh, communicate and interact more than ever with your employees. Bring all staff together with a positive unifying message that gives them confidence that the company will emerge much stronger. This needs to be done at all levels of the company, as employees tend to trust their direct superiors more than leaders.
Eighth, progressive companies don’t cut their way. They invest even more to get out of a crisis. For example, companies could redouble their efforts to hire top talent who would otherwise not be available in better times. Companies could also invest heavily in the development of strategic capabilities and partnerships that could help them significantly in the medium and long term. Making bizarre decisions like streamlining employees or cutting training budgets just to protect a few basis points of margins can be detrimental. In the services sector, such decisions could have serious long-term consequences, particularly in terms of the ability to attract, retain and develop good talent.
Ninth, scan the market for compelling, strategically appropriate, and attractively priced M&A targets. Since digital technologies have spawned hundreds of niche businesses, targeted acquisitions could provide that much-needed edge.
Finally, engage with your strategic investors at least twice the usual frequency. Above all, if you are a publicly traded company, organize as many investor events and webcasts for fair disclosure. The more transparent companies are, the stronger their relationship with investors.
The ability of companies to turn challenges into opportunities with pinpoint precision is what winning stories are all about, and investors appreciate them. Investor webinars are an excellent platform to also communicate with customers, partners and employees to help them understand the company’s vision, roadmap and strategy to meet the challenges of a better future. .
If handled well, a recession is one of the best opportunities to lay the foundation for the next phase of growth by strengthening relationships with customers, employees, partners and investors. The global delivery model that IT services companies have perfected over decades is a real antidote for companies looking to do more with less. Looking back a decade, this period could well be seen as an inflection point and catalyst for the industry to surpass the $500 billion revenue mark by 2030!
The writers are partners with technology consulting firm Catalincs and have decades of experience working for Cognizant
June 14, 2022