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February, 11th 2016

Digital technologies are expected to contribute as much as 14% to the revenue of leading IT firms in 2015-16, according to Nasscom

“In a few years time, machines will be joining the workforce and algorithms might take seat on a company’s board,” said B.V.R. Mohan Reddy, chairman of IT industry lobby Nasscom, setting the tone for the 24th edition of the three-day Nasscom India Leadership Forum that began in Mumbai on Wednesday.

On the first day of the event—attended by close to 1,600 top executives of the information technology-business process management industry—veterans and analysts discussed the opportunities and challenges being created by the disruptive force of digital technologies such as cloud, mobility, Internet of Things (IoT), social and big data.

“Moving to cloud is probably the single-largest opportunity we will face in our careers,” Safra A. Catz, Global chief executive officer of Oracle Corp., said.

In a report released last week, Nasscom said digital technologies are expected to contribute as much as 14% to the revenue of leading IT firms in 2015-16. Further, the industry is estimated to have employed more than 250,000 digitally skilled staff, the report said.

“By 2018, more than 3 million workers will be managed by ‘roboboss’ and 50% of the companies would have fewer employees. And those few employees will have to be very talented,” Claudio Da Rold, vice-president and chief of research (IT services and sourcing) of Gartner, said.

Digital mergers and acquisitions (M&As) saw a jump in volume and value, crossing $2 billion in fiscal 2016, growing three times from a year earlier.

The same report also lowered the revenue growth forecast for the IT-BPM industry, with revenue expected to touch $143 billion in fiscal 2015-16 and $350 billion by 2025. According to the Nasscom report, digital revenue will comprise 38% of the $350 billion industry revenue in 2025.

Given this shift in the industry, every IT services firm is trying to understand how it can increase the digital share of its business, while still managing the traditional business lines in a landscape where start-ups are offering tough competition.

According to N.Chandrasekaran, chief executive and managing director at TCS Ltd, IT enterprises wanting to tackle the digital question, have to work on areas such as creating new business models through dematerialization of physical tasks/processes, need to be agile, be hyper-connected to harness the power of the vast amounts of data and need great focus on customer experience.

“All our internal systems are going to go mobile-only and not just mobile-first. It’s all about enhancing productivity,” he said, explaining how TCS is trying to tune itself to digital technologies and the changing market landscape.

According to industry analysts, there is an urgent need for traditional IT services firms to evolve business models towards digital, as these technologies are expected to impact the topline and bottomline of firms in the coming years.

“Digital technologies is evolving rapidly. The number of disruptive technologies are mind boggling,” Chandrasekaran added.

By 2018, 40% of outsourced services will leverage smart machine technologies, rendering the offshore model obsolete for competitive advantage, as per estimates by research firm Gartner, which added that in the next three years, revenue from smart machine technologies will surpass $10 billion.

To tackle these challenges, different firms are trying their hand at different solutions to prepare themselves. Wipro Ltd is trying to tackle the problem of inertia to move towards new business models by running two parallel organizations or two speed organizations—one which comprises of the traditional businesses and the other which houses the disruptive ones, said Rishad Premji, chief strategy officer and board member at Wipro Ltd
While there are challenges, the move towards digital technologies is also offering new business opportunities, particularly in the financial services industry. Mobile payments is one such area where the established enterprises are looking at to drive growth in the future.

“Mobile payments is a significantly under tapped opportunity in the country. We have one billion mobile phone subscribers in the country, out of which only 50 million people use mobile payments,” said Rana Kapoor, chairman at Yes Bank Ltd.

Every 1% reduction in cash-in-circulation results in GDP growth of 0.4%, he added.

Lastly, India’s start-up landscape, too, is making an impact to the overall IT industry. With over 4,200 start-ups, India is now the third-largest start-up base in the world, with more than 1,200 start-ups being created every year.

Nasscom’s Reddy said the next wave of disruption will come from start-ups and enterprises will have to look at partnerships with them “to leapfrog in terms of innovation, talent and time to market”.

“The way forward is not just about managing change but leading it through technology,” Reddy said.

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