Indian IT needs to take a look at what they do

Management consultant David J Anderson, who specialises in efficient software development methodologies, thinks that India's $70 billion IT services exporter industry may need to take a hard look at what they do and how they do it, before it is too late.

In an interview Anderson tells Indu Nandakumar that Indian IT services companies such as Infosys, Wipro and Tata Consultancy Services are very close to losing the labour arbitrage advantage - an area where competing countries such as China, Argentina, Peru and Chile will soon have an upper hand. The sector needs to be more efficient and its ever swelling workforce more productive to retain the edge as world's preferred outsourcing destination. Excerpts:
Do you think that technology outsourcing is at crossroads?Offshoring is at a complicated stage, because countries like China, Philippines, and Latin America are emerging. Therefore , Bangalore companies can't compete on price anymore . They must look at smarter ways of being competitive and how to keep the growth going. They also need to understand that labour arbitrage won't take them any farther. Some of the people I met here (Bangalore) told me that all their management cares about is utilisation and how much they get paid for an hour.

You said that Indian IT exporters are losing the advantage of labour arbitrage. How do you expect it to happen?There are some things I am seeing from the West on outsourcing . I actually see people going to South Africa or Argentina for cheap work. Argentina is way cheaper than India . So are Chile and Peru. South Africa too offers services at competitive price. I also see a lot of situations where companies are repatriating work to onshore. A company in New York sends work to West Virginia rather than sending it to India partly because of proximity. But mainly because of lead time. If they send work to India, it takes months to finish . But the guys in West Virginia can do it much faster. The repatriation of work is a trickle right now and it could become a problem. If Bangalore companies can cut down on lead time, then they can respond as quickly as someone from West Virginia would do. At the end of the day, the customer really is worried about the price, labour rates. Businesses that really value are beginning to repatriate work to local offices.

You have been promoting the Japanese lean-manufacturing principles of Kanban among IT companies. Why should Indian IT firms adopt your system?For the last 20 or 30 years these firms have used the same business model. But now things are changing because India is losing its labour arbitrage advantage. If you want to reach the next level of growth, the old model won't be enough. Senior executives need to approach new business models and execute this. The short term advantages of Kanban are more predictability, more productivity, reduced delays and in the longer term it improves profitability. For instance, when a project is outsourced, the client wants to know how long it will take. The IT firm has to estimate all the risks and make a promise. Kanban methodology of organising developing software can help these companies in improving predictability and working faster. This helps them drive the costs down and demand better pricing by doing the same amount of work.

What concerns did you hear from Indian IT heads?The middle managers were mostly worried about utilisation rates. They are also fairly conservative when it comes to taking big decisions. But after two weeks in India, I'm way more positive than I was earlier. The Indian IT market has made its money from being slow and steady and low cost. Therefore I do expect the uptake of Kanban to be slow here. The early adopters of Kanban are Nordic companies . But I am confident that three years from now, we will see have hundreds of Bangalore companies making valuable use of Kanban.