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Indian IT Industry and Innovation

June 14th, 2005 · 1 Comment

Business World has an article by Sanjay Anandaram of JumpStartUp, a VC firm. Entitled “The Choking of Innovation”, Sanjay says: “India’s much-vaunted IT industry has to change dramatically to maintain its leadership. A fundamental re-think of the business has to occur.”

For one, the next 10 years for the industry will not be anything like the first 10 years. Increased globalisation, increased choices for employees and customers, and increased competition will force big changes. The industry has grown admirably over the past decade and a half and has attracted the attention of the world. That means Indian IT services now have to contend with brutal global competition and market demands.

Indian IT services companies are prisoners of their own success. Enjoying unprecedented market capitalisations thanks to terrific earnings growth, they find it hard to make investments with unsure time horizons and pay-offs. Investments will dent their earnings and affect stock prices. Investments to explore new business models, partnerships, undertake M&A transactions of any significance, hire globally, do research, and create organisational change are sure to impact near-term earnings. But what of the serious possibility of an adverse impact on business in a few years if these investments are not made now?

Instead of investing their cash surpluses in long-term investments, Indian companies tend to reward their shareholders with hefty, tax-free dividend payouts (thereby enjoying shareholder loyalty) and perform treasury management functions by investing the money in safe mutual funds. Clearly, these companies are signalling that they have no other productive or imaginative use for this capital (e.g. investing in long-term competence and capability development) than paying dividends. The management’s conservativeness is reinforced by the pressure of maintaining quarterly earnings.

It is disheartening from an industry standpoint to see hundreds of millions of dollars simply lying on the balance sheet and not being invested in creating innovative competitive advantages for the future. It is disheartening to see companies lack the confidence to take big, bold steps, even after 20 successful years in the global arena. The ability to dream big on a global level and then take the required steps to realise the dreams is what will distinguish the true global players from the also-rans in the next 10 years.

Mindsets need to change dramatically, especially among leadership levels. From managing status quos to managing risks, from managing people to managing businesses and leveraging opportunities, from managing Indians to managing a diverse global workforce, from a ‘span of control’ to a ‘span of competencies’ – all these initiatives are essential for success. Career paths for R&D and industry experts, for example, need to be made as attractive as jobs that are oriented to people management. An entrepreneurial environment and mindset has to be put in place.

Tags: Software

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