Financial Crisis: Impact on Indian IT industry

Outlook 2009

Financial Crisis: Impact on Indian IT industry

Impact of financial crisis on Indian IT services industry and opportunities it is likely to throw up for companies operating in the Third Wave

Sudhakar Ram

Tuesday, December 09, 2008

All these point to a desperate need for a massive overhaul of systems, and a substantial investment in new IT initiatives. For too long, large institutions have been trying to get away with spending 80 percent of IT dollars just on maintenance, keeping the lights on, and only 20 percent on new initiatives.

In fact, in a recent Information Week article, Rob Preston says that IT’s Number One priority is to release money for new projects. He says: “If you think you can lay low under the corporate radar or continue to argue that the 80-20 rule is an immutable law of IT physics, then you're due for a wake-up call.”

Today’s financial institutions have become too large and complex, while the core enterprise systems are still a decade or so behind. A plethora of point solutions, Excel spreadsheets and people’s ingenuity are what keeps these places running. To make matters worse, sophisticated financial products devised by quant wizards continued to hit the market. These products, being derivatives of derivates, are far removed from the physical reality they try to hedge against. So much so that the underlying financial control systems and risk management systems are unable to provide adequate governance and oversight.

To top it all, the financial crisis is forcing mergers of huge, complex institutions that were individually ungovernable in the first place. The only possible way these institutions can be managed is with substantial investments in new IT applications that can keep track of all the nuances of the underlying operations and provide online, real-time controls that are meaningful.

Implications for Indian IT
Clearly, the need in future is to reduce maintenance budgets and increase transformation budgets. Reduction in maintenance budgets will force more work going offshore, which is good news for the Wave 2 services players in India. However, customers will force the vendors to bring new efficiencies, which would mean that the current ‘Lift and Shift’ model of moving headcount to India will no longer work. They will also expect aggressive cost improvements year on year.

New initiatives will throw up tremendous opportunities for Wave 3 companies that have the depth of expertise as well as the intellectual property assets to bring better governability and manageability to these large enterprises. Indian companies will probably have to partner with local firms that bring this expertise or hire these experts in-house (easier now). This is the time for these companies to make the investment, so that they will be able to reap the benefits in the years to come.

These are interesting times and hence throw up planeloads of challenges and opportunities. It is up to the courageous to go beyond the known and explore new horizons.

The author is Chairman and Managing Director, Mastek

©CIOL Bureau

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nooruddin said on 12/20/2010 2:13:18 PM:
amazing

to nooruddin

frances said on 2/23/2009 8:58:00 PM:
my research focuses only about the financial crisis that has impact on the IT industry. Global crisis is too big to discuss.

to frances

frances said on 2/23/2009 8:54:59 PM:
Do you have about Philippines IT industry?

to frances

mitul said on 12/15/2008 3:28:56 PM:
can you give me further detail on "global financial crisis". it includes the economical as well financial crisis in india. i want to research on how long it will take to recover these effects.

to mitul