In the new digital environment, productivity is being driven by technology improvements, rather than labor growth, and this decoupling of revenue from head count is likely to continue. The Indian IT industry – IT, BPM, and engineering services – added about 3 million people to reach its first USD 100 billion in revenue, but will likely add far lesser to bring in the next USD 100 billion
Over the past decade, increased revenue per employee has been driven by several factors. Among these were increased utilization, increased billing tied to a greater share of consulting and application development projects, and overall productivity improvements forced by more frequent fixed-price contracts. The geographical mix of clients and currency fluctuations were also important factors. Looking ahead, the crucial factors behind greater employee productivity will change drastically.
First, digital service lines are expected to account for 10 per cent of industry revenues by 2020. Digital service lines require a smaller staff to earn the same revenue because of the premiums they command – collaboration with the client is tighter and the necessary specialists more expensive – and a higher reliance on intellectual property and technology investments to develop digital products and services.
Second, new products and services will rely on a greater level of automation than traditional IT offerings. As much as 20 per cent of the underlying processes could be automated in companies with high aspirations, especially with a migration to cloud-based services. In BPM services, as much as 50 per cent of the processes could be automated as they become digitalized and decisions are increasingly driven by analytics rather than by rules enforced by individuals.
In response to the changing staffing trends, technology partners of the future will need to hire specialists with expertise in the digital technologies including big data analytics, mobile application development, new user interfaces, social media, and cybersecurity. This would require hiring more staff with doctorate degrees and qualifications in graphic design, humanities, sociology, and security.
Also, many current staff members will have to be retrained in new skills. The McKinsey survey of top executives at technology companies found that respondents believed that by 2020, skills held by 50 to 70 per cent of their current staff would not be relevant to their businesses.
With retraining, about 50 to 70 per cent of current staff would remain relevant, the survey showed. Along with increased domain expertise, capabilities would have to be shifted from custom software development to standardized software development and from legacy systems like COBOL to digital technologies like .NET. Companies would need skilled partnership managers well-versed in areas including digital technologies, big data analytics, mobile application development, cloud services, and cybersecurity services.
Because manufacturers were early to adopt automation processes, engineering services will likely move counter to this overall trend, and employee growth will track revenue growth closely. However, staff retraining will also be crucial in engineering services. In the McKinsey survey, 62 per cent of the respondents working in engineering services said less than half their current staff would remain relevant without retraining. With retraining, about half said the more than 80 per cent would remain relevant. Capabilities were seen to be needed in diverse fields, including emerging protocols, mobile hardware, the Internet of Things, service delivery automation, hydraulic modelling, and computer control programing.
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