The short answer is – Yes to the IT industry.
If you still need an explanation, do follow the post and you are welcome to differ with my observations, and share yours. Will be keen to learn more.
The over $100 billion Indian IT services industry, which employs almost a million people and indirectly impacts the livelihood of another four million, has indeed helped bring India to the global map and pump in a sizable foreign exchange.
The media, the NASSCOM, the IT fraternity and even our urban society are replete with the positives of the industry.
However, the intent of this particular discourse is to reveal to you the dark side of the Indian IT industry and how it might end up doing more harm than good in the long run. So let me start.
Poor ‘quality of revenue’
While the likes of TCS, Infosys and Wipro flaunt their multi-billion dollar revenues and attractive margins, and campuses, the fact remains that their ‘quality of revenue’ is poor.
Let me start by explaining what I mean by the quality of revenue, if you haven’t already understood. Walmart or Shell makes multiples of more money than P&G or 3M. However, the two large companies make most of their money through trading, and not really creating anything new.
Notwithstanding that there might be innovations in supply chain at Walmart or process engineering at Shell, but such innovations are mostly to lower the cost and not add much value.
On the other hand, 3M, which makes close to $30 billion in revenues, or P&G, which makes close to $76 billion in revenues, have mostly done so by launching new products. 3M for sure.
TCS of India makes $15 billion with close to 300,000 employees, Wipro makes half of that number with slightly more than half of the employees ($7 billion with 170,000 folks), and Infosys does no different. Their growth is almost linear (read, headcount driven), and hence predictable.
The whole business model could be reduced to two notions- cost arbitrage, and task fragmentation. If we remove the cost arbitrage (and strengthen the rupee), and call for a systems view, Indian firms might fail miserably.
The revenue growth is purely headcount driven and by doing more with less. I call this as low-quality of revenue, as compared to a startup which might actually be creating a novel product, but not making money in eight figures. That’s the first factor that is making the industry mediocre.
Settling for ‘B-‘ talent
If you talk to the placement offices at premium educational institutes in India, say the IITs, NITs and IIMs, for that matter, none of these Indian IT companies figure on day-zero, let along day-one at these campuses. (I would be happy to be corrected here, though).
There seems to be an explicit understanding at the leadership level of these large firms that – ‘we don’t need such a premium talent for the kind of work we do here’. With the two advents of automation, and the resulting deskilling, Indian IT firms are happy ‘training’ the ordinary talent to be doing just about anything.
The training facilities at such companies are so massive and well-oiled that in a matter of weeks they can make you learn, and even unlearn almost anything. As a result, almost anyone can get trained, just like the hiring during a wartime scenario.
But what the leadership at Indian IT services firm fail to understand is that for every ‘B-‘ talent hired, you set the firm for only hiring the ‘C’ and the ‘C-‘ talent going forward, and not ‘A+’, ever. Why will a ‘B-‘ talent hire anyone any superior to her? Meritocracy brings meritocracy!
Further, over time, students from good colleges won’t even look at the Wipro, Infosys or the TCS to be a part of, a scenario amplified with the advent of the startup culture.
I am not suggesting that good talent doesn’t exist outside of IITs or NITs system, but remember-
Your probability of spotting one in the good institutes if far higher than sifting a few in the ordinary campuses.
It takes just about a few good people to write a great application or invent a great product, and of course, an army to manage such products (something the Indian IT industry has managed to learn rather well, now to its own demise).
Skewed incentive systems
Research has demonstrated that incentives shape behavior, more so in a workplace.
Now for a $16 billion company, which of the two is more likely to garner attention, and investments-
A) a service line that commits to generate $300 million in year one by providing infrastructure maintenance, or
B) a new application that might make $5 million license sale after one year?
My experience and observation says- A.
$5 million at a base of $16 billion is like a rounding-off error! Notwithstanding that that the quality of that $5 million might be far superior to the $300 million service, the firm might leave no avenue for the IP creation team to persist. As a result, the $5 million potential project get choked.
If incentives shape behavior, which they do, are the IT firms offering the right incentives for innovation to be shaped? Can an engineer grow without ever being a manager? Why the heck should anyone be required to ‘manage’ others in order to do a good job?
If you observe the patents granted to the Indian IT firms in the USPTO, you would quickly realize that most of these patents are in ‘process’ category or that of smartly saving costs.
A quick look at Google Patent Search reflects the following:
Infosys Technologies Limited – 232 results (including granted patents)
Wipro Limited- 175 results (including granted patents)
Tata Consultancy Services Limited- 1100 results (including granted patents)
Almost all of these patents read as ‘a system and method….’. I would encourage you to read a few of the patent documents to get a sense of the work.
Certainty, just about 2-5% of these patents would see the light of the day (as per the global standards), I don’t even concede that patenting has been a priority for these firms.
Further, a quick glance at the Annual Reports reveal that the R&D intensity (R&D spending as a share of revenue) is almost always less than 2%.
That’s horribly low of a company which has ‘technologies‘ in its very name!
Without any further explanation, I leave for you to decide whether the massive IT firms have done their share of justice to the potential intellect available with India, or have just exploited cheap labor.