Say yes to Buffalo and no to Bangalore!

Obama’s new mantra – “Say yes to Buffalo and no to Bangalore!”. Are the Indian IT outsourcing majors understanding this change … I do not think so. The days of easy 40% margins are gone along with the days of high growth. The Indian IT majors need to understand that adding fresh labor by recruiting graduates with no business understanding is not going to guarantee them clients. Its high time that the Indian IT companies need to wake up and start creating real value for clients with IP creation and domain specialization. Today the client need is going to be how can a IT partner make us more efficient or add more value to my business rather than just provide me with a army of coders.

This is a complete paradigm shift and I don’t think its happening in the Indian IT majors. The IT majors may say that they are going up the value chain by investing in IP creation or having domain based solutions but  I see this more of a half baked half hearted attempt.

I recently had a interaction with one of India’s largest IT major which had plans to create IP led retail solutions for the small and medium (SMB) market segment in APAC. This segment is stated to be having the highest growth rate as per analysts in the coming years.

The IT major had plans to create pre built solutions for this segment which is the right way of going forward but just after December 2008 it shelved the plans as due to the slow down all the investments were shut. This is what I mean when I say a half baked, half hatred attempt. The IT major started on the right note but ended up not believing in its own approach. The recession needs to be taken up as a opportunity and the IT major has the necessary resources to invest in this time. But alas it has fallen in the cost cutting trap.

Addressing the SMB segment has its own challenges. The traditional time and material (T&M) or traditional fixed bid (FB) ways of developing solutions will never work as the costing will just not work out in the SMB segment. Addressing this segment requires upfront investment in creating IP and then patience as ROI cannot be in 2-3 quarters which the IT majors are today expecting. It needs a longer term investment and focus but only those majors who start today will survive over the longer run. The double digit growth rates of IT from business from the west is over and so are the 40+% margin projects. Thus the need for the hour is to invest from the spoils from the good times in IP led domain solutions.

Hope the Indian IT industry wakes up and amend their ways.