Studies of the computer industry often note that the same companies rarely maintain leadership through two successive phases of the industry's evolution. IBM's marketshare in the 1960s, exceeded the collective share of the next five companies, which were called the "BUNCH" - Burroughs, Univac, NCR, Control Data and Honeywell.
But, IBM failed to keep that dominance in the personal computing era, where Microsoft and Apple came to the fore. Microsoft and co. failed to translate dominance of standalone personal computing into dominance of the internet. New players like Google exploited the Web better. Google in turn, has struggled to hold its lead in the era of social media where Facebook has taken over.
It's been similar with devices. PC-makers like Dell and HP-Compaq were stumped by mobiles. Nokia was the 800-pound gorilla of the mobile feature phone. Blackberry was a pioneer in smartphones. Neither has managed to hold onto #1. Apple bounced back with the iPod and became the world's most valuable company during the smartphone/ touchscreen era.
One commonsense explanation (which many B-School papers have made) is that technological changes happens a lot and change brings massive disruption. No incumbent wants disruption. Hence, newcomers are more likely to exploit disruptions as and when these arise and IT is disrupted often.
The Indian information technology (IT) sector as a whole has done remarkably well in gaining ground through several phases. Indian IT companies first gained from labour arbitrage by offshoring when they started providing armies of coders at a fraction of First World costs. They gained even more through the willingness to do the dirty jobs on a massive scale in Y2K. The ITES phase again saw labour arbitrage, via call centres.
That dominance is now called into question by a sequence of disruptive technological shifts. The cloud, automation and artificial intelligence are all technologies that reduce the need for large headcounts. These technologies drastically reduce labour arbitrage. Instead of large headcounts of average skills, IT businesses now need to deploy relatively small numbers of smarter, highly skilled people. That's a different game.
In addition to this long-term trend, there is Brexit and that will impact Indian IT companies used to operating out of London since that cannot be their EU headquarters anymore. Plus, there's wariness about the US Presidential election. The new president could directly impact the industry via policy changes. If Donald Trump wins, it is believed that he may restrict H1 visas. Hillary Clinton's positions on the issue are less clear. Second, the two presidential candidates have completely opposed views on the taxation and regulation of financial services. The largest revenue segment for Indian IT services is America's BFSI sector and those clients are all waiting for the election to end before they formulate their next strategies. At this late stage, Clinton seems almost certain to win, but no BFSI business based out of the US will commit resources to future plans until it's a done deal.
The long term impact of technological change may change the IT industry much more than temporary policy effects. As a whole, the industry will certainly adapt. But, the incumbents will do so reluctantly because it will mean radically changing business models and reducing headcounts.
This could mean leadership in the IT services industry changes a lot over the next couple of years. Where that will lead is hard to predict. But, we have seen small startups beating huge incumbents many times in this industry. It is quite likely to happen again.
But, IBM failed to keep that dominance in the personal computing era, where Microsoft and Apple came to the fore. Microsoft and co. failed to translate dominance of standalone personal computing into dominance of the internet. New players like Google exploited the Web better. Google in turn, has struggled to hold its lead in the era of social media where Facebook has taken over.
It's been similar with devices. PC-makers like Dell and HP-Compaq were stumped by mobiles. Nokia was the 800-pound gorilla of the mobile feature phone. Blackberry was a pioneer in smartphones. Neither has managed to hold onto #1. Apple bounced back with the iPod and became the world's most valuable company during the smartphone/ touchscreen era.
One commonsense explanation (which many B-School papers have made) is that technological changes happens a lot and change brings massive disruption. No incumbent wants disruption. Hence, newcomers are more likely to exploit disruptions as and when these arise and IT is disrupted often.
The Indian information technology (IT) sector as a whole has done remarkably well in gaining ground through several phases. Indian IT companies first gained from labour arbitrage by offshoring when they started providing armies of coders at a fraction of First World costs. They gained even more through the willingness to do the dirty jobs on a massive scale in Y2K. The ITES phase again saw labour arbitrage, via call centres.
That dominance is now called into question by a sequence of disruptive technological shifts. The cloud, automation and artificial intelligence are all technologies that reduce the need for large headcounts. These technologies drastically reduce labour arbitrage. Instead of large headcounts of average skills, IT businesses now need to deploy relatively small numbers of smarter, highly skilled people. That's a different game.
In addition to this long-term trend, there is Brexit and that will impact Indian IT companies used to operating out of London since that cannot be their EU headquarters anymore. Plus, there's wariness about the US Presidential election. The new president could directly impact the industry via policy changes. If Donald Trump wins, it is believed that he may restrict H1 visas. Hillary Clinton's positions on the issue are less clear. Second, the two presidential candidates have completely opposed views on the taxation and regulation of financial services. The largest revenue segment for Indian IT services is America's BFSI sector and those clients are all waiting for the election to end before they formulate their next strategies. At this late stage, Clinton seems almost certain to win, but no BFSI business based out of the US will commit resources to future plans until it's a done deal.
The long term impact of technological change may change the IT industry much more than temporary policy effects. As a whole, the industry will certainly adapt. But, the incumbents will do so reluctantly because it will mean radically changing business models and reducing headcounts.
This could mean leadership in the IT services industry changes a lot over the next couple of years. Where that will lead is hard to predict. But, we have seen small startups beating huge incumbents many times in this industry. It is quite likely to happen again.
The author is a technical and equity analyst