Innovation in Industry – An IT Services Perspective – Part 1

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The software industry can be broadly classified into two areas: software products and software services (or IT services, as the sector is also known). Innovation in the software product industry is well known and has followed the product innovation trends in other industry sectors, perhaps understandably so: since innovation and novelty determine not just growth but also survival for product companies of any type.

The innovation story in the IT Services world however is different. Unlike the products space, survival and growth traditionally has followed a ‘linear’ model: Increased revenues arising from increased ‘net billable head count’ – skilled personnel deployed on customer projects. The traditional focus in this sector therefore has been about operational excellence, especially in the initial years of the industry where there was no shortage of demand. A well-oiled RTDE machine (Recruit, Train, Deploy, and Execute) has been sufficient to ensure the rapid growth of IT Services sector –with reports putting the current size as around 600 billion USD globally. The success of the RTDE machine depends on excellence in operations, staffing and execution. Unfortunately, this has resulted in innovation and value creation initiatives taking a back seat.

As industries mature however, the parameters for survival and growth change. The IT Services sector is at a stage of maturity where there are two fundamental shifts happening:

1)   For large, established companies the linear model is likely to fall apart over the next few years. Year-on-Year growth simply by adding headcount in a linear manner will result (and is resulting) in scale problems – for example, the lack of sufficient numbers of qualified personnel in certain skill areas in the market itself. Customers are also increasingly demanding differentiated services and value adds over and above traditional execution.

2)   For smaller companies it might be possible to grow linearly – however the difficulty is in getting the first meeting with the customer and opening the discussions. “How are you different” is often the first question during a customer discussion.

The answer to both of the scenarios above is Innovation. Whether large or small, established or start-ups, innovation needs to be a high priority agenda item for organizations in the IT Services Industry. Most organizations have some central group taking responsibility for innovation initiatives. While this is important, long-term survival and success depends on innovation being deeply woven into organization culture. Most importantly, it is in the day-to-day execution where organizations need to be innovative – whether it is a practice team building offerings and solutions, or a delivery team executing a project, or a sales team positioning the offerings in front of the customer, or the leadership team deciding on organization strategy.

In my next post, I shall try to provide some examples of Innovation in the IT Services industry, including the areas where Happiest Minds is attempting to make a difference.

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