Bizofit’s launch coincides with tectonic shifts occurring in the IT Services landscape. These shifts may even be considered the genesis of Bizofit (pronounced as: Biz of IT).

While the epicenter of these shifts is predominantly in the US, the tremors are being felt all the way in India – a natural result of the ‘Flat World’ that we are in today. Offshoring – a significant trend over the last 2 decades – is facing its biggest challenge today from another more recent trend i.e. ‘Cloud computing’.

Enterprises are rapidly transforming themselves, migrating to the Cloud, and consequently re-evaluating their Sourcing options. This new trend forcing enterprises to revisit their Sourcing/ Offshoring strategies is also being referred to as “Reshoring”. I have coined a new term ‘Cloudshoring’ to correlate this Reshoring strategy with the underlying trend to migrate to the Cloud.

While the ‘Cloud’ may even represent a significant opportunity to some in the Indian IT Services industry, it is certainly likely to be a threat to several current players. While companies are trying to adapt to ‘Cloudshoring’, and perhaps even embracing this trend, there is likely to be a significant shakeout in the industry as a result.

To understand why the Industry’s Offshoring Business model is being challenged, it is important to understand the current context. The model that many leading companies have today, is the model of the last decade. The 90s was all about Staff Augmentation – providing skillsets at a certain $/hr, or in other words, “People”. The last decade was all about Distributed Labor, and executing tasks/ projects Onsite & Offshore leveraging quality “Processes”. Those that provided top notch people, and had robust industry-standard processes (SEI CMM, ITIL, Six Sigma, ISO etc.) did very well. However, with the recent trend to migrate to the Cloud, this decade is all about “Platforms” and “Partnerships” in addition to “People and Processes”– the ‘4P’ model as I call it.

One may argue that this changing landscape is well recognized in the industry, and that rapid strides are being made in this regard in terms of investments in Products or Platforms. Unfortunately, these investments have been extremely “reactive” in nature. Remember that the first time around, many of the leading companies were founded in the 80s (or before) – well before the Offshore wave – which means the investments were made “proactively” by companies, and the then-fledgling industry waited for external conditions i.e. Liberalization, advancements in Indian Telecommunications etc., to provide a conducive and enabling environment.

This time around, the leading companies are well behind the curve. Thanks to the “Cloud”, this curve is steep. Let me illustrate the point with an example. Even as recent as 5 years ago, a major transformation typically involved custom development/ implementation, which required armies of people to execute. It made sense to do this with an army of developers offshore for obvious cost and quality benefits. That pyramid model with a very broad base of freshers, and 1-3 years’ experience, served the leading Tier 1 companies well for the last 15+ years.

Fast forward to today. In the new “cloud” world, enterprises are realizing that Cloud, Transformation, and Automation are not mutually exclusive. You can achieve Transformation, by leveraging the Cloud, and an Automation Platform thus making redundant large armies of custom developers. Today, what you need is a lot fewer, but highly skilled and specialized “Architects” – Solution and Technology Architects – and not freshers, or recently trained / lightly experienced “generic” developers.

Further, having to advise clients/enterprises about technology choices between a large custom development effort (multi-million dollar program), and migrating to a Cloud Platform (involving much lower upfront IT Services spend), the companies are faced with an inherent conflict of interest.

Now, let us assume that companies have identified this trend, and are even adapting themselves quickly. Even if this were to be the case, it is highly unlikely to happen without an adverse impact on both revenues, and margins (in constant currency terms).

With these significant headwinds, it begs the question as to whether the 12-14 % forecasts Nasscom has put out for 2013-14 is too optimistic. Time will tell.

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2 COMMENTS

  1. Metaphors and analogies galore to drive your point of cloudshoring. you indeed write very well!! While, I agree with majority of the content, I must point out that the market still does not have a plethora of mature cloud solutions for customers to choose from. Besides Salesforce.com and Workday, we dont really have too many cloud solutions to address horizontal business functions.

    The move from custom-development to packaged solutions that you point out, started way back in 2000(s) itself and I dont think that per se is causing the real dips in IT revenues or threatening offshore providers.The immediate impacts to IT revenues will come more from erosion of IT infrastructure services , which in many cases contributes to 10% of revenues. I think IaaS(Infrastructure-as-a-service) will impact revenues more than SaaS(Software-as-a-service).The other big portion of the revenue pie that will eventually get impacted is Application Management and Maintenance (50-60% of revenues). The ‘holy grail’ of cloud is the seamless updrades it offers and that will make redundant the need to have an army of people supporting applications. This impact may not be immediately felt but will manifest in the years to come.

    Since you like analogies, this is more like Global warming.Gradual but consistent change leading to a wave of business disruption and IT transformation that hits across all oceans with far-reaching, devastating consequences for Indian service providers:-)

    I dont think Indian IT service players have still figured out where they want to play in the new value chain.Many have platform solutions but these havent seen market adoption. I think they will end up being CSB (term coined by Gartner – Cloud Services Brokerage).

    Please keep the blogs coming. Interesting and enlightening at the same time.

    • Thanks for the comments, Meenakshi.

      Back in 2000, the move started with what was then called “Application Service Providers”. The difference between then and now (in my opinion) is that the Service Providers and the ecosystem itself is far more mature now, and therefore the integrations between different service providers is also more seamless.

      Often times, enterprises today will be hard pressed to develop an in-house application that is comparable to those that exist already.

      In addition to Salesforce and Workday, there are several – Servicenow (an ITSM platform), Office 365 (Office Productivity), Concur (Travel & Expense Management), Dropbox(Storage) WordPress (Content Management), Ariba (Procurement), Fieldglass (Contractor management, Ellie Mae (Mortgage Origination) and hundreds of others that cater to the Enterprise segment today. Barring the core business application that is a source of competitive advantage, for everything else, one has to have a serious justification to not look at Cloud offerings.

      I have had discussions with some very large enterprises that have started their move to the Cloud quite aggressively.

      Again, thanks for your viewpoints and a constructive discussion.

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