IT Industry - Changing Dynamics

IT outsourcing and BPO Industry that has rapidly grown and evolved in last 10 years is poised for another major transformation. Some of the outstanding aspects of the transformation are

- Billion plus club (companies with billion plus revenue) market share will shrink and they will try to consolidate to counter the decline

- Traditional business models and operating models are not suitable for the new market dynamics, where customers will demand better economics (than what is provided by labor arbitrage)

- Global companies like HP, IBM and Accenture will increase the gap further from Indian outsourcing companies that will find it hard to penetrate emerging markets like Eastern Europe, South America and Asia, where currency and labor arbitrage does not translate into economic benefit for customers

- Mid sized companies will either consolidate with large ones or transform into niche players, as competing as an end to end service provider will render them uncompetitive

- Product and application vendors will increase their service pie and eat into traditional IT services areas as customers will rapidly adopt to On Demand and SAS kind of applications

- American and European customers (Fortune 1000 companies) will also give ascent to expanding globally and will localize more than centralize "glocalize".

What might succeed..

- Companies will need to be decentralized and should be able to cater to local markets more effectively (specially true for non American/European locations)

- Global delivery model will no longer be the holy grail and can only be applied selectively

- Companies will have to deconstruct the centralized operations, which rely heavily on expensive infrastructure etc and will need to invest more in technologies that facilitate mobile workforce and virtual teams

- Companies that can change the rules of engagement and create significant customer value will do better than others

- Acquisition and mergers will not add much value and will erode shareholder value in long term, companies that rely on acquisition will largely be the ones that are looking for a band-aid solution to more serious ailments

- Companies will need to be more global and transnational in operations and mindset. Diversity will be a key factor

- Large capital investments on infrastructure and operations will lead to negative ROA